The Biggest Challenges House Flippers Face

		The Biggest Challenges House Flippers Face


Written by Ashley Sutphin
Monday, December 27, 2021
The Biggest Challenges House Flippers Face

There tends to be a glamorization of house flipping, likely brought about by watching home improvement and real estate shows. The reality is that house flipping can be a difficult and often disappointing undertaking. That’s not to say some house flippers don’t find great success, but there are also so many challenges that can come along too.

If you’re considering wading into the flipping world, when you’re realistic about the challenges, you’re already putting yourself in a better position to deal with them.

The following are some of the most significant challenges you might face along the way if you flip a property.

Finding the Right Property

Many homes are not a good investment in terms of flipping. You have to find neighborhoods that will appeal to buyers, but you need properties that are going to be priced below market value in that area. Your goal with flipping isn’t to let the property appreciate slowly—it’s to sell quickly.

Some of the ways you can gain leads for properties well-suited to flipping include looking for probate properties, going to auctions or keeping up with foreclosure lists. Tax lien properties, wholesale properties, and short sales are other options.

You need to do the math before bidding on a property to know the highest price you can pay and still make a profit.

With each home you buy you have to think about the property’s actual value, current conditions of the market, comparable home prices, and how much you think it’ll cost you to make repairs and upgrades. These considerations have to be weighed against the possible listing price.

Funding

Some flippers can pay cash for properties, but if you can’t, it can automatically put you at a disadvantage. That doesn’t mean you can’t work around this, but it’s something to be mindful of. For real estate investors, it’s not uncommon for mortgage lenders to want a significant down payment of 25% or more.

You’ll also have to come up with the cash to do the work on the property, pay contractors, maintain the utility bills, and cover closing costs.

Along with planning for everything above, you’re going to need a contingency to tap into if things don’t go according to plan, which is almost inevitable.

You may be able to use equity from a rental property you already own or get an investor for private funding. Otherwise, your two primary options are a traditional lender or using your own cash, both of which have risks.

Delays

When you’re an investor, and you experience delays on a project, it can be incredibly frustrating. Your contractors may have other jobs they’re working on, materials might not arrive on time, or machines and equipment might break down.

Once there’s one delay, it often creates a ripple effect.

To avoid some of the impacts of delays, you shouldn’t rely on just one person or company for everything. You need to be careful about vetting contractors and realize cheaper isn’t always better. You should also have backup plans for everything, although some delays will happen no matter how well you plan.

Unforeseen Expenses

Above, we mentioned the importance of having a contingency cushion built into your budget, and the chances are very high you’re going to tap into it when you’re flipping a house.

You might not have known there was mold behind a wall, or a pipe in the wall could burst unexpectedly. Weather and delays can also contribute to expenses you didn’t initially account for.

The best you can do to plan for the unexpected is to try to budget for them ahead of time.

Not Understanding the Market

Finally, when you’re a house flipper, you absolutely have to understand the market, and it’s not easy. It takes time, experience and research to grasp what’s happening in the market at any given time. Many new flippers just don’t get it but they jump in any way.

It’s not always the prime time to start a new project. For example, demand might be down, or mortgage rates could be high. There can also be external issues in the local area where you are.

You can’t just consider the trends when you’re already entrenched in them. A good flipper is ahead of the trends, and you can time your purchases and flips accordingly. Factors to understand include local house inventory levels, trends in mortgage rates, and property values.

If you’re lucky, you’ll find an experienced local realtor who can help you a lot as far as understanding local housing conditions.





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