4 Dangers In Flipping Real Estate

You are not alone if you have just purchased real estate for investment purposes. According to recent studies, up to 25% of these transactions are made by people who intend to use the home solely for investment purposes. If you want to "flip" the house, there are four factors you should be aware of that could limit your profits.

1. Property Taxes. If you keep the property for a few years, your property taxes may rise, especially if your taxes are reevaluated during that time. In just 5 or 6 years, taxes in certain hot real estate areas have virtually doubled.

2. Renovation Expenses. You may have gotten a good deal on a "fixer upper." Will you be able to recoup your costs and earn a profit once your project is completed, especially if the value of your renovated house exceeds that of your neighbors? Furthermore, can you endure a drop in real estate prices?

3. Insurance and Mortgage Costs. If you have tenants and do not live in the house, you will pay extra for homeowners insurance. If you're financing the property, you're probably aware that your mortgage rate is also higher.

4. Rental Pressures. Because there are so many rentals on the market, the rents you can charge will be lower than you expected. To be a landlord in some areas, you must first obtain specific licensing. In some markets, tenants' legal rights mean that getting rid of a problematic tenant can be a long and expensive process. Will your investment suffer as a result of lower income levels and increased expenses?

Of course, you may reduce your risks [and expenses] by performing the majority of the upgrades yourself, appealing exorbitant property tax increases, and finding a loyal and trustworthy tenant. Flipping a house isn't simple, but with a lot of grit and persistence, you can make a lot of money.


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