Buying real estate for investment purposes may seem like a lonely job at times. You do not need to feel alone, almost 25% of all properties sold in recent times are purchased as an investment property. If you are one of the many people buying property for the purpose of flipping you need to watch out for the four points of risk. Ignoring these potential risks could quickly turn your investment into a loss.

The first risk you need to consider is property taxes. Property taxes can be re-evaluated at any time, depending on the whims of the area appraisers. This can be especially troublesome if you are planning on keeping the house for several years before flipping it. If the area market is rising quickly in prices, or you make major improvements to the home, the appraisal can come back much higher, and your tax rates may jump through the roof.

Your second risk is renovations costs. When you buy a fixer upper, you need to make sure the price is low enough to allow for the costs of the renovation. You must establish a firm budget, and keep your costs tightly under control. If the renovations require a long period of time, you need to be very aware of market trends in the area. Downward price corrections in the neighborhood of your investment could suddenly turn your renovations into an area of loss.

The third risk, which often catches new investors, is the added costs of using your property as a rental property, if it is not selling quickly, instead of inhabiting the home yourself. Insurance rates are higher, sometimes significantly, when the property is used as a rental. If you are using a mortgage to finance the home, you’ll need to inform the bank or mortgage company of your plans. Most mortgages are rated for you to inhabit the property, and when it is purchased for rental purposes the interest rates may be higher. Keep this in mind if you plan to rent the property, prior to flipping it. You need to check these costs before making your investment, so you can properly evaluate the profits of flipping the property.

The fourth risk is your local real estate market. You need to carefully evaluate the market in the area. If there is a glut of open properties, you may have difficulty in finding buyers, and maintaining the sales price you need for paying the mortgage and other expenses. Knowing the facts about your market is critical in making proper decisions when buying properties to flip.

These risks are all easily within your control, with proper research and planning. Renovation costs can be reduced greatly by doing some of the work yourself, or reducing the scope of work to the essentials. Offering a price, knowing the facts about your costs for insurance, and mortgage payments, allows you to buy the property at a profitable price point, or to walk away without a loss.

Knowing your facts can help ease the challenges in flipping houses, and keep you on track for higher profits. Flipping houses just requires thought, hard work, and determination, to keep your business profitable.

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Filed under: Flipping • Real Estate Investing

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