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15 Misconceptions About Flipping Houses
Sep 07, 2018
It is a favorite hobby of many to watch house-flipping shows on television. You get to see everyday folks turning the worst-looking properties into beautiful homes that many people would pay top dollar for. Something about the glamour and drama of renovation just makes good television. But that’s all it really is — good television. In reality, property flipping is not as picture perfect as it seems.
1. The Perfect House
Reality TV shows often promote the idea that homes should be practically flawless in order to make a successful flip. Overdoing a home in a specific style in order to achieve that perfect, TV-ready look may actually hurt your resale chances in the long run. Make sure the structure is sound and your basics are covered. Focus less on over-the-top bells and whistles. – Elizabeth Ann Stribling-Kivlan
, Stribling & Associates
2. Renovation Time
While reality TV makes flipping houses look like a quick 30-minute process, the actual reality is there is much research, time and preparation involved in renovations. Depending on the city, the permit approval process alone can take weeks. Any person interested in this field should be sure to do as much research as possible and have realistic timelines. – Priscilla Porter
, Dixon Advisory
3. Holding Costs
Understand how long it actually takes to get the house on the market. On TV you get the impression that all the workers are getting in there and fixing everything quickly. Even the best schedule usually has delays. Build in adequate timing and understand that there are costs involved in holding the property. – Jill Szymanski , Bar Louie
4. Difficult Budgeting
The concept of taking a junk-house and revamping it something desirable is gratifying. Everything looks simple on TV: They buy the home, the contractor renovates it and before the hour-long episode is over, they have sold it to make tens of thousands of dollars. In reality, construction timelines are almost always delayed, repair budgets can be difficult to stick to and homes rarely sell within an hour. In the flipping business, “time is money” definitely applies. Holding costs, such as insurance and interest, add up each day and could potentially destroy profits. Holding onto the property for more than one year can leave you susceptible to long-term capital gains taxes, which can be up to 20%. Flippers buy and fix homes in order sell for a profit. If you add up the purchase price, the renovations and the holding costs, these amounts would be subtracted from the sale price to figure out the amount of profit or loss. Flipping can be lucrative, but requires a large time commitment as well as connections and knowledge to get the home completed and sold as quickly as possible. – Beatrice de Jong
, Open Listings (YC W15)
5. Outrageous Estimates
The rehab is where most people falter because whether you do it yourself or hire contractors, you will end up over budget and it will take longer than your most conservative estimate, so you’ll be paying more and carrying the house longer. It is very difficult to make money on your first deal, but what you learn will help you make money on future deals. – Alex Hemani , ALNA Companies
6. Closing Costs
Often omitted areas of costs are the carry and closing: the cost of money/borrowing and closing costs on both sides of the transaction, which can be hefty and include transfer taxes, attorney fees and commissions. And on the buy-it-then-rent-it shows? They never detail operating costs. Electricity and property taxes are musts. – Beverly Serral
, Beverly Serral Signatures
7. Achieving Scale
The TV-show hard costs are rarely accurate. Most inexperienced home flippers need to understand that their pricing will be higher for a long period of time until they achieve scale and make the right relationships to lower costs. These shows also very rarely show the true cost of closing. – Chris Powers
, Fort Capital, LP
8. Long Timelines
When budgeting a rehab project, it always takes longer and costs more than originally budgeted for. Add a 15% fudge. The house-flipping shows skip weeks of permit and construction delays that are very common in real life. This is not really reality TV; it’s more unreal than real. When choosing your first rehab project, avoid any projects that involve foundation issues or replacing the systems. – DC Fawcett
, DC Fawcett – Virtual Real Estate Investing Club
9. Unpredictable Holdups
As the founder of an infill development company, we do everything from major rehabs to ground-up development, and nothing we do is easy. When you break into walls the plumbing may not be where the plans say, the electrical maybe worse than you think or the roof may leak. Each one will cost beyond what you budgeted for. Subcontractors will walk on you, neighbors will fight you. Remember, a show is just good TV. – Ridaa Murad
, BREAKFORM | RE
10. In-Your-Dreams Properties
Whenever I watch the big home-flipping shows, I can’t help think, “How do they find these properties?” I show a lot of houses, and I’m an MLS junkie. I live and breathe this stuff, and I seldom see a property where the numbers work for a flip. The real mystery of these shows is the acquisition portion of the project. I’d love to see a reality show about finding these properties — I’d watch that. – Joe Boylan
, SpringsHomes
11. Selling Costs
I have flipped over 150 houses in my career, and I feel sick every time I see the numbers on a flip show. There are so many costs that are not accounted for like financing costs, selling costs (commissions, title insurance, attorneys, etc) and carrying costs (yard maintenance, utilities, property taxes, insurance). On many of these shows, the profits are actually 10 to 20 thousand less on a $200,000 sale. – Mark Ferguson
, InvestFourMore
12. Market Research
Fix-and-flip TV shows make it look fast and easy to renovate and sell a home. In the real world, house flipping is a full-time job, not a one-hour gig. To be profitable, you have to research market and neighborhood trends, find the right home to buy, accurately estimate renovation costs, supervise the craftspeople making upgrades, manage budgets and permits and successfully negotiate a sale. – Bobby Montagne
, Walnut Street Finance
13. The Lie Of Renovation
Many processes on those shows do not reflect the real life of the flip business, especially the renovations and improvements. They have to plan the whole renovation, inspections, agents to buy and sell — let me tell you the truth, there is no money in this showtime model. Try to buy, if it is possible, only off-market properties (foreclosure sales, tax deed sales, promissory notes, etc.). There are many ways to get off-market properties. Not all properties have to be renovated. Many times you will need to wholesale the properties to turn the profit around very fast. Buy only where you understand the market. – Rodrigo Brandao Schiavo
, Premier Capital Realty, LLC
14. Not-Obvious Details
Yes, floors, kitchen, bathrooms and landscaping are areas you need to direct the most focus and money in. However, often investors overlook the small details that many savvy homebuyers will notice. For example, even if the baseboards, doors and shelves are in good condition, often replacing them will result in higher ROI and shorter days on market for resale. – Mor Zucker
, Team Denver Homes – Kentwood Real Estate
15. In And Out Fees
Costs on both sides of your flip are a tough challenge. It’s important to calculate your fees to buy and sell the property. Standard is 3% when you purchase property, and up to 10% when you sell property. It’s 13% of sales price and this is without regard to any rehab costs or holding costs. You have to sell your property for at least 30% to 40% more than you paid just to break even. – Elliot Bogod , Broadway Realty
– 15 Misconceptions About Flipping Houses
