Just turn on your TV and chances are you are going to see several shows on the docket that are all about fixing and flipping old homes. However, this isn’t just the latest reality television rage, it is one of the fastest growing types of investments that people today are making. However, fix and flips aren’t quite as simple and fun as the pros on Flip or Flip and Fixer Upper make them seem. They are a huge financial commitment and a big risk, especially for first-timers.
This is why it is so important to know all of the “pros” and “cons” of fix and flip investments before you decide on whether or not this type of investing is for you.
Pro: You don’t need all cash up front. Unlike some other investments that require a large amount of cash to get a large return, you don’t need a lot of cash up front in order to invest in real estate. While you will need some cash down, you can finance much of your fix and flip investment with personal loans if you don’t have enough cash on hand. This is a major misconception about these fix and flip properties, many people think they need to pay for the entire investment property in cash.
Con: It is more complicated financially than most people think. While there is no denying that fix and flips can be a great investment, they are much more complex than they seem on all of the HGTV flipping shows. You need to think about LTVs (loan size to value of property) and you ARV (or the appraiser’s estimate of the property value after the renovation), in addition to renovation costs, realtor fees, closing costs and interest that can all impact your bottom line. In fact, according to Hard Money Home, there are several things you should figure out with your financing before you ever apply for your fix and flip loan.
Pro: You actually can make a lot of money fixing and flipping houses. There potential for profit with fixing and flipping homes is virtually endless. The numbers you see on those television shows may be high (these TV stars are the best in the business after all) but they are possible.
Con: There are going to be a lot of out-of-pocket costs. No matter what you think you may spend on a fix and flip, you should just go ahead and plan on spending more with out of pocket expenses. There are always new costs hidden around every corner, and renovations on complete fix and flips like this can easily go over budget.
Pro: You get almost instant equity. When you invest in a true fix and flip, you are investing in something that can only increase in value. As you rehab this home, you will only be increasing its value more. Plus, there are so many options and opportunities out there, and less competition than you would find in normal properties.
Con: It involves a lot of time, stress and effort. Fixing and flipping is not for the faint of heart. It may seem easy on television, but it can be very stressful and overwhelming. The good news is HardMoneyHome.com has an arsenal of tools available that can help alleviate some of the stress involved, particularly with the financing of these investments.
Doing a fix and flip can be a smart investment and a great way to make some money, but it also has the potential to be a major flop and cost you a well. Before you jump in head first to an undertaking such as this, make sure that you create your own list of pros and cons and really think about whether this type of endeavor is right for you.