6 Things HGTV Doesn't Tell You About Flipping Houses
HGTV makes flipping houses look easy, but the truth might be a little more complicated. If I had a nickel for every burst of home-renovation inspiration/hysteria I got after watching just one episode of Property Brothers or Flip or Flop Vegas in spite of my complete lack of experience in construction or real estate, I'd have almost enough nickels to actually finance my project. These shows make flipping homes look like a sleek, satisfying and profitable experience. It's enough to make a gal pick up the real estate pages and start ordering power tools on Amazon. But before you get a head of yourself, take a deep breath — there's a lot about flipping homes that these shows don't usually show you.
From complicated accounting to dealing with city bylaws, regulations and taxes, there's an unglamorous side of house flipping that we never see. It’s behind-the-scenes work that you won’t get much satisfaction out of, but it’s just as important as making sure that your kitchen upgrade goes according to plan.
Before you quit your job and set off on a flipping adventure, read on to learn more about the gritty truth of flipping houses.
1. You probably won't get rich
Don't be fooled by what you see on TV. Real estate investor and developer Justin Pierce wrote for the The Washington Post that it's actually really hard to make a substantial amount of money as an individual flipping homes. Even if you sell a flipped house for more than what you purchased it for, in the process of the flip, you'll need to pay for any materials you use for DIY projects as well as labor and material costs for professionals (like plumbers, electricians, carpenters, landscapers, etc.). You also have to think about taxes, interest on any loans you take out to purchase the house and real estate agents. You never know how a flip will go, so there's always the risk that you won't turn a profit at all — and might actually end up sinking money into a house.
2. It's incredibly involved
A lot of people think flipping homes is something they can do on the weekends while they keep their regular job, but the truth is, it can be a lot more hands-on than that. Professional house-flipper, Lin He told CNN, "It's not glamorous and it's real work, dealing with gross properties."
If you get an emergency call from your contractor (if asbestos or mold is discovered, if there's a plumbing issue), you might have to leave work to deal with the problem right away or else risk losing big money on your property.
If you plan to do any renovations yourself, you might find yourself in over your head too.
Not to mention the work that goes into finding a suitable house to begin with, interviewing and hiring carpenters and skilled laborers to work on the house and finding a realtor.
3. Every house is different
You might have a successful flip your first time around only to find a dud the second. It's hard to know what's going on in the "bones" of a house until you start renovating, and while one house might have updated electric, bone-dry walls in the bathroom and up-to-code footings, another might be hiding mold, asbestos a shoddy DIY wiring job and other nightmares below the surface. You just never know what you might get, so if you aren't prepared to deal with surprises along the way (financially and psychologically), flipping might not be right for you.
Flipper and home inspector Michael Marlow told Fits Small Business that getting a home inspected is a crucial step. "A thorough home inspection will help prevent undesirable surprises along the way", Marlow said. Once your contractor is done inspecting it, get it inspected again by another home inspector for two reasons. One, you can make sure your contractor did everything they were supposed to do and that they did it correctly. And two, you can then use that inspection report as a tool when you need to negotiate with your contractor."
4. Finding funding is hard
A lot of people think they can apply for a loan at their bank and be all set to start a flip, but finding the funding for a house flip is actually pretty difficult. Real estate coach and owner of WeLend Peter Vekselman tells SheKnows, "It can be difficult to get funding for a fix and flip. Traditional lenders usually require perfect credit, and often, the process is long. It’s best to find a lender who works with flippers and have an easy application process, require a small portion of down payment and have a quick turnaround time."
5. It's hard if you aren't a pro
If you're not already in the business of flipping or home renovation, Investopedia notes that you're going to need to rely on a lot of other people to help you make your vision a reality. Hiring the right people for the job — carpenters, general contractors, designers, plumbers, etc. — is time-consuming, and if you're not already in the know, it can be hard to gauge what pricing is fair and who has the skills and experience you need — and trying to save a few bucks by hiring the professionals with the lowest bids could land you in hot water. Architect and founder and CEO of Sweeten Jean Brownhill tells SheKnows, "Accepting that super-cheap bid could lead to an unlicensed contractor being unable to obtain [the] proper permit. Plus, you're responsible for the cost of repairs if the work doesn't meet building codes, which is especially important in resale."
You'll have to do a ton of research to learn about the market your house is in so you can decide on the right updates to make to your property. You don't want to overdesign a house that will be too expensive for the neighborhood, but knowing where that line is can be tricky.
6. Math is a huge part of it
If you don't like crunching numbers, flipping houses is probably not going to be your jam. You'll need to very precisely keep track of where the money's going so you don't spend more than you'll make in the final sale. Even calculating those forecasts requires a mathematical brain. If you're doing some DIY work, you'll also want a solid grasp of geometry. If this doesn't sound fun or doable to you, you might be better of just leaving the flipping to your favorite TV stars. Hey, you can save the money you would have invested in your flip property to make some upgrades to your own place.