5 Dangers In Real Estate Flipping
Real estate investments generally represent an avenue to generate additional income. This is mostly true if everything goes according to plan. So, it therefore safe to say that real estate investment is not the “safest investment to make”, as most people like to refer to it. There are a number of risks involved, in fact, things could turn out badly if appropriate measures are not put in place. Of course, this is not to meant to generate panic, but it is wise to prepare for the risks your investment may likely bring.
Here are few dangers associated with your real estate investment and property flipping.
1. Holding Costs: Asides other expenses you may incur, the property will continue to cost you money as long as you own it. You will have to pay taxes, insurance, and mortgages (if you have one). This is not to mention the cost associated with maintenance. Depending on the location of the property, maintenance may include grass clearing and even snow plowing, which also cost money.
2. Property Taxes: As soon as the building is completed, property tax may be increased. This should not be a problem if you already have a willing buyer or “tenant”. However, if you don’t have one, the increase in property tax can gulp up a huge chunk of your budget. Potential buyers may also have a rethink since they may incur a higher tax bill by purchasing your property
3. Renovation and Other Costs: This usually poses the greatest risk. Unexpected expenses will arise and you need to be prepared for them ( this is important if you intend to flip your property). Renovation materials not budgeted for, contractor issues, delays associated with permits, are all a part of the expenses that may create a big hole in your budget.
4. Pressure: Once your building is completed, the next step is to put it up for sale or rent. This should be the point where your profit begins to roll in, but it’s not always as simple as you may think it is. There are most likely going to be other rentals available in the market at the same time you are putting your property up for sale/rent. This will drastically reduce the amount you can charge (that is if you want to sell or rent it out fast).
You may also have to deal with the possibility of securing a license to become a landlord if your property is located in areas that require one.
5. Tenancy and Agreement: This is location dependent but could still represent a great risk. Tenant rights in some locations or markets can be problematic and expensive when you are trying to rid yourself of a bad tenant. Costs of extended legal battles may reduce your profit on the property in the long run.
While there are so many advantages associated with real estate investments, the dangers highlighted above should also be taken into consideration. This is will give you an idea of what you are up against, and also help you maximize your returns on investment. Just like every other business and investment, real estate requires patience. Placing focus on the “positives” alone may lead to losses or eventual investment collapse.