FIX TO FLIP

THE UPSIDE

The most obvious benefit of flipping houses is instant gratification. Rather than having to wait years to pay off the property and reap all the profits from your monthly rent check, you can enjoy immediate gains when flipping a house. And unlike the stock market which can change in the blink of an eye, real estate markets are predictable. Overall, flipping is considered a lower risk investment strategy.

THE DOWNSIDE

But there are considerable costs that come with flipping a home. Distressed properties, the types of properties that are ideal for flipping, may come at a lower upfront cost than, say, a brand new home. But repairs may require a significant investment, depending on the state of the home. Transaction costs can be high on both the buying and selling end, which is something all investors need to consider. Another important thing to consider: the market itself.

Take the story of one flipper who purchased a duplex for just $40,000. After extensive renovations and converting the floorplan to a single-family home, the home was put on the market for $170,000. What the investor failed to realize was that even though the home had granite countertops, hardwood floors, and new windows, it wasn't the type of home people in the neighborhood were looking for. He wound up selling the home one year later for just $125,000. He didn't earn a cent from this flip.