8 House Flipping Myths Busted
Don’t be discouraged from real estate investing because of these bogus myths!
House flipping, and real estate investing in general, is an immense field with great potential for profit. Throughout history, owning and dealing in real estate has been the universal way to increase wealth, and has become synonymous with profit.
However, in modern times, the Internet has become flooded with misinformation about the business. These myths often spring from post-recession paranoia and pessimism.
On the other side of things, idealism often discourages potential house flippers from realizing on the reality of the situation: no deal is ever perfect.
Most of these fallacies are perpetuated by the media or by general public, not by the real estate investors themselves. To conquer your fear of real estate investing, you must first cleanse yourself of the any myths you might hear.
The 8 Most Common Myths Of Real Estate Investing
There are dozens upon dozens of urban legends surrounding the house flipping game. Below are 8 of the most common myths you might hear about.
1. You Need Money To Make Money
One of the most common misconceptions about the business is that real estate investing is reserved for the wealthy. Many people think that you have to already have a great deal of expendable income to purchase a property.
While money does make things easier, it is still very possible to buy properties with no money of your own.
The answer is “OPM”, or “other people’s money”.
Many flippers often choose to purchase properties by using a loan. Over time, if everything goes as planned, you will generate enough expendable income that you can then switch to paying for your properties in cash.
2. If Your Credit Is Bad, You Won’t Be Able To Get Funding
The standard way to get a loan is by going through a bank, and if you don’t have good credit, this might seem impossible. Fortunately, there are many other ways you can acquire the money needed for real estate investing.
One of the ways you might consider is using a private investor. Private investors can be anyone you know, from a family member, a friend, or a coworker. They just need to be a person with some expendable income looking to invest.
Another option is by using a partnership. If you have no money and no credit, the partner might front the money while you do most of the work.
Finally, if all else fails, you could get a loan from a hard money lenders. Hard money lenders work like banks except they don’t consider things like credit score, income, or assets. They also charge you percentage points on top of the interest.
3. Real Estate Is ALWAYS Risky
Often times, property investing is associated with risk. Sometimes markets depreciate and unforeseen problems occur resulting in a negative profit.
However, there are certain ways you can avoid this risk, or at least minimize it considerably.
One of the ways you can do this is by wholesaling. While a standard fix and flip can be a make-or-break if it’s your first project, wholesaling is a safe road for newbies. Wholesaling can be a great stepping-stone because, if done properly, you don’t have to spend any money of your own or borrow any. Instead, you will find a property and put in under contract. Then, you will find a buyer who will close in your place. You receive a wholesaler’s fee in return.
Whatever you decide to take part in, make sure you do your homework and research everything involved. Find out the property ARV from a reliable real estate broker, assess the neighborhood and community, get an inspection, and calculate potential profits before finalizing any purchase.
4. You Have To Be A Contractor To Flip Houses
While having some experience in home renovation can certainly save you money, it is not required to be a house flipper.
Many people instead will hire a team of contractors to tackle their rehab. While it costs more money, it is generally quicker and less stressful than taking it on yourself.
You don’t want to be two months into a project, buried in plaster, electrical wires, and debt when you realize that rehabbing isn’t for you.
Even the most seasoned contractors will hire other contractors to work on at least some of the renovations. Most contractors do not know how to do every craft in the book and usually require outside help.
5. You Should Always Sell Right Away
As you may have heard before, the longer you hold onto a property, the more money you will lose. Expenditures like insurance, taxes, utilities and maintenance will cost you every month. Additionally, the longer you hold onto a house, the more of a chance you will run into vandalism. Even worse, insurance companies usually do not cover vandalism past the first month.
While striking facts like these suggest that you buy and sell as quickly as possible, you don’t always have to.
Instead of wholesaling or the fix and flip, you could try the buy and hold. There are two main ways you can profit from this.
First, you can rent out the property to a tenant or tenants for a monthly profit. Second, you can hold on to the house until in appreciates and you can sell it for a great value.
Depending on the market and the type of house, you might consider this option.
6. The Best Time Of Year To Sell Is In The Spring
Many people believe that the springtime and early summer is the best time to put your property on the market. This is the time of year when school is letting out and families are reorganizing. The idea is that you get your house out on the market when there are more fish to fight over your worm.
While this used to be true back in the 50’s when most home buyers had a family, it doesn’t hold up in contemporary America.
In today’s world, most home buyers are single people. Surprisingly, the best time to sell is actually in late December and Early January. These bachelors and bachelorettes want to take advantage of the time they have off following Christmas and relocate.
If you have a choice in the matter, consider selling around the New Year.
7. You Can Get Rich Quick
Many Internet gurus will preach that you can become a wealthy socialite with a top hat and cane by learning a few cheap tips and by buying their book.
In reality, there is no real way to get rich quick. Like any field, real estate investing takes hard work, determination, and time to become successful.
You are never going to make all the money from one flip. Instead, you can slowly increase your income by minimizing your risk, taking your time, and by not cutting corners.
So if you were planning on relaxing in a swimming pool full of money after your first flip, you might want to recalibrate your mindset.
8. There Exists A Perfect House For Flipping
In a previous article, we discussed how to recognize value in a property. Attributes like a strong foundation, a reputable school district, a weak competition, a good neighborhood, and a prime setting are all things that you should try to find when buying a house.
However, finding all of these attributes on one particular property is nearly impossible. Sometimes you cannot find a rundown home in a great neighborhood. Sometimes you can’t find an ugly duckling with great bones and no heavy damages.
Your job is to do the best you can. No house is perfect and you’re always coming to run into problems. Don’t wait around for years and years trying to find the right property to flip.
Instead, pick a house and run the numbers. If you’re well in the green after your calculations, then it might be a worthy buy.