You’re probably familiar with this widely publicized strategy for making money in real estate. It involves purchasing a home and quickly selling it for more than you paid for it — often after making some minor upgrades. While House flipping might seem like a quick way to make a buck, it could actually end up being a big waste of time — or worse, a source of lost funds. Here’s why.
House flipping has some serious downsides
There are some big disadvantages to flipping homes that can make it very difficult to make this real estate investing strategy work. Here are just a few reasons you might want to steer clear:
You’ll need a lot of money to flip houses: You need to spend money up front to purchase the home, to buy materials and pay laborers to fix up the property, and to pay carrying costs such as property taxes and insurance. That’s especially tough with current labor and materials shortages. It can be difficult and expensive to get loans for house flipping, and you risk incurring huge ongoing expenditures if you can’t sell the property as quickly as anticipated.
There are big opportunity costs: Your money will be tied up in the house while you do any necessary repairs and wait to find a buyer. That cash can’t do other things for you during this time. You’ll also need to spend time managing repairs — or even making them yourself if you hope to benefit from sweat equity. That’s time you can’t spend doing other work that could earn you money.
What should you do instead?
Have the downsides of house flipping convinced you that buying and reselling houses isn’t worth the time and effort? The good news is, there are plenty of alternatives to consider, including:
Purchasing rental properties: While this strategy requires a hands-on commitment (or money to pay a great property manager), you won’t have to rely on the short-term trends in the housing market going your way. You will theoretically be able to earn returns both as tenants pay rent and as your property appreciates in value. And you’ll have access to some generous tax write-offs. But you will need a lot of capital to get started with this approach as well.
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