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Learn About the True Costs of Flipping a House: Is It a Risk Worth Taking?

written by: M Lambert•edited by: Jean Scheid•updated: 11/19/2009

Flipping a house sounds like a great easy way to make money. It sounds simple buy a house at a low price and then paint it and sell it for profit, but flipping a home is not that easy. Learn the real risks involved in flipping homes.

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    Think You Can Make Money Flipping Houses?

    Most people have seen at least one infomercial advertising the benefits of flipping homes for profit. There are promises of quick pay off and the chance to become truly wealthy. If you are considering flipping homes as a way to add to your income or if you would like to do it full time, it is important that you fully understand the risks involved in flipping a home.

    The first risk in flipping a home is borrowing the money in order to purchase and repair the home. This is generally done with loans. Some of the loans will require monthly payments while others are for a set period of time say ninety days and then require payment in full at that time. If the deal does not work out or you are not able to sell the home for the amount you estimated you would end up owing the money and actually end up losing money on the deal. Flipping homes with cash is a much safer way to go and it will help you to begin more conservatively.

    Another risk that many flippers take is buying the home at auction without actually assessing any damages or repairs that will need to be made. This mistake can really drive up the cost of the project in terms of repairs and slow down how quickly you will be able to sell the house and turn a profit on it. The repairs can lower your profit. These problems may include dealing with termite damage or mold issues. These repairs are a lot of money, plus the slow down will cause you to pay more interest on the loan.

    Many people buy the home for too much money. If you want to flip a home you should purchase it for no higher than seventy percent of the appraisal price minus cost of the repairs. This insures that you will at least make a thirty percent profit on the home. It also gives you a little extra room if the market shifts or if you have trouble getting it flipped as quickly as you had planned.

    The risk increase when you take on too many properties at the same time. When you first begin flipping homes you should start with just one property and work up to taking on more properties once you have successfully flipped a few. Most people get into serious financial trouble when they are juggling too many properties at once. Additionally, it helps to be able to handle the flips in person, so it is a better idea to do your flips in state so that you can oversee them and address your problems personally.