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Advantages and Disadvantages of Flipping Houses

Flipping Houses - Coldwell Banker Rizzo Mattson, RealtorsIs "flipping" for you?  These are the potential risks and rewards of buying homes at low prices to sell later for a profit.

Advantages

  • You can be your own boss and make a decent full-time or side income.
  • The Federal Housing Authority (FHA) has extended the ban on their "90-Day Anti-Flipping" rule for all FHA-insured loans through December 2014.  So, eligible buyers can use FHA-insured financing to buy properties they plan to flip.
  • If you plan ahead, do your homework, and market well, you can make a quick profit.  This involves determining how much you need in profit, including the after-repair value and the location, and calculating repair and closing costs.
  • You don't always have to fix a home much or at all; some new homes in hot markets can sell, too.
  • You can buy homes that don't need extensive renovations, to bring them up to par with others in the neighborhood. 

Disadvantages 

  • The work involved in research, meeting people, securing financing, etc. can take a lot of time, so you should decide what to delegate to others and budget for professional help.
  • You can't predict when a home will sell or what will appeal to buyers.
  • Having cash on-hand for a down payment is more important now, and how much you can afford affects your loan interest rate.
  • Sometimes contractors do shoddy work or take too long to finish -- make sure they're licensed and insured.  Before you hire anyone, check references.
  • You can spend a lot of money up front.  Sometimes flippers don't plan well or make much of a profit.  They can over or under-remodel or estimate their budgets.  And the more people involved, the more it will cost.
  • If you sell a home after owning it for a year or less, it's subject to a short-term capital gains tax.

For more advice, call Coldwell Banker Rizzo Mattson: 207.622.9000.

Sources:

Connors, Tiffany.  How House Flipping Works.  How Stuff Works.

Dolamore, Lindsay.  Realtor.com: Fix and Flip Homes Still a Good Investment.

Poretsky, Solomon.  The Nest.  What are the Disadvantages of Flipping a House?  

Roberts, Ralph R.  Flipping Houses for Dummies.  New York: John Wiley & Sons.  

Woollard, Deidre.  Realtor.com: The Four Big Fix and Flip Mistakes: BiggerPockets Investor's Corner.

Woollard, Deidre.  Realtor.com: Thinking of Flipping? What You Need to Know Right Now.

 

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  1. Stephen in Florida on

    Thanks for sharing this nice and concise list of home flipping pros and cons. There are many potential gains to be made from investing in properties, but it really is something that you need to have thought on and prepared yourself. I would definitely say that developing a complete exit strategy before ever making that first purchase can also be a really great plan of action.
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