So, you have decided to start investing in real estate and you are wondering whether to flip properties. Maybe you've attended a real estate investment seminar and pre-seminar on flipping properties. Maybe you've seen a television program about how easy it is for people to make $30,000 or more flipping properties. Maybe you saw an article in your newspaper about the flipping property craze.
Well, step back and think it through before you go out and put your first house under contract.
First, flipping properties can be very profitable. You really can make up to $30,000 or more buying a property, doing some rehab and then reselling it for a huge profit.
Is it easy money? No.
Flipping houses is work. It takes hard work to find an exceptionally good deal. It takes knowledge of your market. It takes knowledge of rehabbing. It takes knowledge of the house selling process. It requires holding money and it usually takes longer than you thought it would. That 3 month time frame you had in mind will probably be more like 6 months unless you've done a lot of fix and flips before.
You know the upside of flipping properties: relatively quick cash, but consider also the downsides.
What if during the 3 to 6 months you are working on the house you see a significant change in your market? What if prices down 5, 10 or 15% during that time frame? You need to be prepared for that.
What if you significantly under estimate repairs? What if a $10,000 projected repair budget turns into a $35,000 budget instead? If you had decided to do a deal with a solid $25,000 in profit, but your budget for repairs is suddenly $25,000 higher, then you are working for free.
Also, once you sell a house, you stop making money on the house. With rental property, your tenant pays most, if not all, of the expenses on the property while you continue to profit from income on the house from rents especially as they go up over time, tax incentives from depreciation on the house, equity build-up as the loan is paid down and appreciation from the rise in values over time.
In summary, while flipping properties can be a good way to generate large chunks of cash, it is not easy money. Furthermore, it should be considered speculation and not real estate investing. Long term real estate investing in rental property gives you long term benefits from the property.
James Orr is a professional real estate investor and marketing expert.
You can subscribe to his real estate e-newsletter and access audio downloads, articles, marketing materials and educational real estate videos at his Real Estate Investing blog.