With tons of celebrities and reality shows all getting into house flipping, you may be wondering if it's a solid investment option for you. Mike LaCava, real estate pro and president of House Flipping School, helps you figure out if house flipping is right for you.
With all the hoopla over flipping, it would seem as if anyone can make a good living by buying, renovating, and flipping houses. In reality, this is only partially true. There are a number of different factors you need to take into consideration before you consider pursuing house flipping as an investment option.
What Is House Flipping?
But before we even discuss how to get into house flipping, we should clarify what the term actually means. "House flipping" is used to describe the process of buying distressed properties at a deep discount, then gutting and renovating them, and selling that vastly improved property to a new homeowner as fast as possible to lock in maximum profits.
The way house flipping is done today is far more responsible, far more lucrative, and far more personally rewarding than in the past. When you buy ugly, run down properties, beautifully renovate them, and sell them responsibly, you're not only adding real value to the community, but you’re also reaping more lucrative profits at the same time.
House Flipping 101
Before you dive headfirst into renovation-style house flipping, you should first follow these steps to determine whether or not this kind of real estate investing is right for you:
Step #1: Assess Your Risk Tolerance
It's important to note that when you flip houses, you can lose money. The more houses your flip and the more systems you put into place, the greater your profits and the lower your risks. But when you're first starting out, you need to be aware that there is the potential for loss of capital.
With this in mind, you need to assess your own capacity for risk. Some questions you may want to ask yourself are:
- If I invested my own money in a house flip, what are the potential downsides?
- How comfortable do I feel putting large amonts of money on the line? How would I handle the loss of that money?
- When I invest right now, do I pick large-cap mutual funds and index funds or do I go for sector funds that may have a higher return but greater risk?
If your answers are more conservative and risk-averse, then house flipping may not be for you.
However, if you're drawn to fast-paced, risky, dynamic environments, then house flipping may be a good style of real estate investing for you. The question is, how to start?