If you have recently purchased some real estate for investment purposes, you are in good company. Recent reports suggest that as many as 25% of these purchases are made by those who plan on using the property for investment purposes only. If you hope to "flip" the property there are 4 things you must be aware of that can put a crimp on your profits.
4 Dangers in Flipping Real Estate:
1. Property Taxes
Keep the property for a few years and you may experience a surge in property taxes especially if your taxes are reevaluated during that time. Some hot real estate markets have seen taxes nearly double in just 5 or 6 years.
2. Renovation Expenses
You may have purchased a "fixer-upper" at a bargain rate. Once your project is complete will you be able to recover the expenses and make a profit especially if the value of your renovated property is above those in your neighborhood? In addition, can you withstand a correction in real estate values? Don't trust those TV series where they don't show all expenses. You have to take into account many things like:
Purchase Costs
- Purchase price,
- Inspection cost,
- Appraisal,
- Survey,
- Lender's fees,
- Closing costs.
Rehab Costs
Labor
Interior
-
Demo
-
Interior Carpentry
-
Framing
-
Door Replacement
-
Window Replacement
-
Other Carpentry
-
Drywall Replacement & Repair
-
Plumbing
-
Rough
-
Finish
-
Electrical
-
Rough
-
Finish
-
HVAC
-
Rough
-
Finish
-
Painting
-
Flooring
-
Carpet
-
Hardwood
-
Tile
-
Vinyl
-
Kitchen
-
Cabinet Installation
-
Countertop Installation
-
Appliances Installation
-
Trim Work
-
House Cleaning
Exterior
-
Roofing
-
Roof Maintenance
-
Roof Replacement
-
Soffits/Fascia
-
Gutters
-
Exterior Carpentry
-
Siding
-
Exterior Trim
-
Decks
-
Landscaping
-
Termite Inspection/Treatment
-
Garage Doors
- Foundation/Structural
- Holding costs
Materials General
-
Permits
-
Dumpster
Interior
-
Framing Lumber
-
Drywall
-
Finish Carpentry
-
Doors
-
Windows
-
Finish Electrical
-
Light Fixtures
-
Fan Fixtures
-
Finish Plumbing
-
Hot Water Heater
-
Toilets
-
Sinks
-
Faucets
-
Flooring
-
Tile
-
Carpet
-
Pad
-
Hardwood
-
Vinyl
-
Trim
-
Kitchen
-
Appliances
-
Cabinets
-
Countertops
-
Backsplash
-
Garbage Disposal
-
Bathrooms
-
Vanities
-
Bath Hardware
-
Shower/Tub
-
Tile
-
Washer/Dryer
-
Finishing Touches
-
Door Knobs/Deadbolts
-
Switches
-
Receptacles
-
Switch Plates
-
Outlet Covers
-
Mini Blinds
Holding costs
- Mortgage payments,
- Property taxes,
- Insurance,
- Utilities,
- Lawn care.
Selling costs
- Selling price,
- Commission to agents,
- Buyer's home warranty,
- Buyer's termite letter,
- Buyer's closing costs,
- Seller's closing costs,
3. Insurance and Mortgage Costs
You will pay more for homeowners insurance if you do not occupy the residence and you have tenants. If you are financing the property you know that your mortgage rate is higher as well.
4. Rental Pressures
A market saturated with rentals will mean that the rents you can charge will be less than what you had hoped to receive. In some markets you are required to get special licensing in order to be a landlord. In other markets the legal rights of tenants mean you could have a lengthy and expensive battle in ridding yourself of a bad tenant. Will the lower income levels coupled with the added expenses drag your investment down?
Of course, you can limit your risks [and costs] by doing the majority of the upgrades yourself, appealing excessive property tax increases, and finding for yourself a trusted and dependable tenant. It isn't easy flipping a home, but with a lot of pluck and determination, it can result in strong profits for you.
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Engel & Völkers | EVU Luxury Homes
Engel & Völkers | EVU Luxury Homes
