Buying and Flipping Homes: Real Estate as an Investment

houseIn Western Cultures, almost everyone would like to be rich. This is the nature of a capitalistic society and the line between greed and wealth is often intertwined. One of the most popular ways of making money is investing and Real Estate Investment can be very profitable.

When investing in real estate, there are several different approaches, but the age old adage of “Buy Low and Sell High” is something that has historically worked very well in the real estate industry.

Risks Flipping Homes

Some people prefer to buy a home, perhaps fixing it up, and then sell it. This is often referred to as Flipping a Home, as the idea is that you buy it and sell it as quickly as possible for a profit.

While many have had tremendous success buying and flipping homes, there is a very high risk associated with it. This is because you are to a large degree at the whim of the current housing market. If house prices begin to fall or there are too many under priced homes in the area, this can mean taking a loss.

The current market of an excellent example of how this can backfire. Starting in the Nineties and continuing until a few short years ago, home prices were almost always increasing. It was common for a home to increase 25%, 50% or even 100% in the course of only a year or two. As a result, real estate investors were making incredible profits. Then, beginning in 2007, the bottom fell out of the credit market, home values began dropping, and people began loosing their homes. Many investors were left holding homes that were no longer increasing in value and were actually depreciating.

The other disadvantage is that most of the time, the investor is fighting the clock. Seldom will they actually purchase the home outright and instead a mortgage is usually used. This means that each month that the house remains unsold, they are loosing money.

Fixing and Flipping

Today, home prices are actually much lower than they were, but in the past when flipping a home, it was often necessary to find a home that was in disrepair and fix it up. This works extremely well for those who can preform the work themselves, which is called sweat equity, but for those that must hire contractors this can be very expensive.

Also, as a result of the fluctuating home prices, many investors have lost money after paying to fix up a home that was in disrepair.

Leave a Reply

You must be logged in to post a comment.