Thanks to TV programs like “Masters of Flip,” “Flip This House,” and countless others, real estate flipping has become a hot topic in recent years. The shows give a supposed behind-the-scenes look at how skilled investors make fast cash by transforming run-down junkers into livable, luxurious homes—but purchasing a property and making a profitable flip isn’t always as easy as it seems.
Like any investment, real estate flipping entails risk and uncertainty. While it does bear potential for loss, it also offers the possibility of massive rewards. In the spirit of transparency, founder and CEO of GUION PARTNERS INC. Lindsay Guion of New York, New York, has compiled these basic pros and cons of real estate flipping. By presenting the good along with the bad, he hopes to provide the information necessary for those who are interested in the field to decide if it’s right for them.
PRO: The potential to turn a quick profit
If you invest intelligently and you know what you’re doing, you’re going to be able to find initial investments at the right price—and the right price means higher and quicker turnovers, especially in comparison to other popular investment methods.
According to Lindsay Guion, if you have your budget outlined, contractors ready to go, and your specialists prepared, a flip can happen relatively quickly. This makes real estate renovations one of the fastest and most lucrative investment methods.
PRO: You gain valuable work experience
Learning how to effectively flip homes requires a good eye for market trends, an understanding of home renovation processes, and knowledge about the real estate industry at large. Acquiring these skills doesn’t just make you a better, more lucrative investor—it also makes you a more well-rounded individual with a wealth of work experience.
Regardless of whether you stick with real estate investment as a career or move on to other pursuits, the skills and information you gain through learning how to flip homes will serve you for the rest of your life.
PRO: House flipping gives a thrill
There’s something undeniably appealing about taking a run-down, outdated building and transforming it into a beautiful, valuable home. Outside of the potential for monetary gain, Lindsay Guion highlights the personal satisfaction provided by flipping homes. He compares the feeling of finding a great deal on a building to the thrill of scratching off a lottery ticket and finding the winning numbers.
PRO: You are your own boss
Many have turned to pursuits like real estate flipping because they’re sick of the traditional 9-5 grind and are seeking something with more vitality and flexibility. For some, flipping is exactly the right fit.
Lindsay Guion highlights that those who are working in this form of real estate investment have the luxury of making their own schedule, abiding by their own rules, and being their own boss. Additionally, flipping real estate can be done at either a full-time or part-time capacity, making it ideal for those who have careers but are looking for a lucrative side project.
CON: Unanticipated costs
Real estate flipping requires plenty of planning—unfortunately the nature of plans is that they often go wrong. Even the best home flipping experts report that projects quite consistently require more time (and money) than they had originally anticipated. Unforeseen and increased property taxes, difficulties with building permits, contractor delays, permit delays, and unexpected renovations can all eat into profits and potentially end in loss.
CON: Potential for significant losses
With the potential for big returns comes the potential for loss. If you haven’t done your research and you don’t know what you’re doing, there’s a pretty good chance your investment will flop. In fact, even well-seasoned real estate flippers will sometimes land on a sour deal.
This, unfortunately, is the nature of the business. With so much potential for unforeseen costs, renovation roadblocks, and economic hindrances, those interested in real estate investment should understand and accept its potential for failure.
CON: Increased Stress
While some find the uncertainty and risk involved with real estate investment an invigorating thrill, others are less suited for the challenge. Lindsay Guion points out that the added stress of real estate flipping is a major drawback for many who are interested in the field.
Juggling finances, dealing with contractors, meeting deadlines, and finding a buyer can each be anxiety-inducing ventures. While go-with-the-flow risk takers will love the game, those who prefer security and certainty may find the stress involved with real estate flipping is simply not worth the sacrifice.
Final Thoughts from Lindsay Guion
There are many positives and negatives to house flipping. While there is a potential to turn a profit, there is also a potential for losses. The best thing to do is to weigh the pros and cons appropriately and ensure that you have the budget for potential unanticipated costs, says Lindsay Guion.
It is also important to keep economic conditions in mind. If there is a chance for the real estate market to drop sharply in value, it may not be time to purchase a house for flipping. On the other side of that, if you complete a house flip in the midst of an economic slowdown, you may not want to sell until the economy corrects itself to ensure that you get the most out of your investment and your time spent flipping the house.