Question: Is real estate flipping profitable or risky?
Answer: Yes and Yes.
Real estate flipping is not for the feint of heart. That being said, with the right attitude, patience, and a little DIY know-how, buying and selling properties for investment purposes can be something the whole family can get into. If you are adverse to taking risks, don't have much of a nest egg saved up, and/or aren't interested in being a landlord, it's probably not for you. Otherwise, here are the things to think about before you buy real estate with the aim to flip it and make some money.
Things to Consider Before Buying and Flipping Real Estate
How Much Money Will be Involved?
How are you paying for your investment? Are you wanting to tie up some cash as a tax write-off? Are you planning on getting a mortgage? Does the property need work before you can make a profit? If so, how much work and who will be doing it? Are you content to hold the property for a while if need be?
These are important questions to ask if you are just starting out in the Buying & Flipping business. At the end of the day, you are gambling on the real estate market. If you are getting a loan, you are betting on the Feds and their interest rates (although right now, with interest rates holding at a steady low, that's a good bet). If you have the money to fix the house up, that's great. Even better is if you, family members, and or close friends have enough knowledge to fix up the house sans labor costs.
How Much Time do You Have?
Right now, real estate prices are low but due to the economy, they are probably going to stay that way for several years. Are you prepared to wait? Unless you're buying a serious fixer-upper, and plan to do the work yourself, you are probably not going to see much of a return on your investment for a while. Buying a home with good resale value can help you to wait for a more dramatic upward turn from the real estate market and can help you get some higher-paying tenants in the meantime. Which brings us to the next point...
How do You Feel About Being a Landlord?
Remember the glory days of 1996, when you could buy a home and then resell it the next month and make $50,000? While that's a bit of an exaggeration, quick flips of houses aren't that profitable right now so you may want to enjoy the high rental market and wait out the lull. If you don't mind searching for tenants and dealing with some occasional repair issues, there is a good chance you'll be able to make more than your mortgage on an investment home and spin it later when home values go up more dramatically.
Nobody can say that buying and flipping real estate doesn't carry some risk, but when it's done right real estate investment is almost always profitable.