We all know that buying a home is a good investment. But is it worthwhile to get a fixer-upper?
Flipping homes is in vogue, to say the least. But before you make the jump, it’s important to weigh out if it will really be a good choice for you to invest the time and money it requires to take on such a project.
There are a lot of factors that go into flipping a home. A savvy investor can make a lot of money off of the housing market but what goes into that process really? Let’s explore what it takes to flip your home.
Why is Real Estate a Good Investment?
Unlike stocks and bonds, real estate offers a more predictable return on investment. There’s not a lot of guesswork involved. You have a safe place for capital regardless of how volatile the stock market gets. A savvy investor can garner a substantial amount of wealth in the housing market. Once you secure the equity from your housing investments, you’ll have a great nest egg to finance other investment ventures.
What is House Flipping?
When we talk about flipping a home, many people may associate it with sprucing up a fixer-upper. This is one method investors use to make a profit on a home. But there are actually two ways to flip a home.
The first method is purchasing a home that could increase in value with structural restoration or an updated design. If purchasing a fixer-upper sounds like a daunting endeavor, the second option is to purchase a home below current market value and collect equity over the course of a few months or years. This option is referred to as a buy-and-hold.
The fixer-upper is more popular than ever with a suite of HGTV shows highlighting the process. By investing labor and funds into an outdated, shabby home, an individual can turn around and sell it for profit. But, of course, this venture comes with its fair share of risk.
- Fixer-uppers are typically cheaper
- Bidding wars aren’t as common
- Forced appreciation can gain you a significant ROI
- There aren’t many financing options for flipping a home so, much of the project will come out-of-pocket
- Unforeseen issues can send you over your projected budget
- The renovation process can take months or even over a year
When home values are rapidly on the rise, an investor might choose to pursue a buy-and-hold. Unlike a fixer-upper, little to no renovations are required to make a profit. A home investor will simply purchase a home below the current market value, hold on to it for a short amount of time and sell it at a substantially higher cost.
- Many investors can amass great wealth quickly
- Renting the property out provides fairly steady, regular income
- You may have lower tax rates than a fixer-upper because it counts as investment income
- It can be difficult to find reliable tenants sometimes
- You’re responsible for paying the mortgage no matter what
- It is a management-intensive endeavor with a lot of responsibilities and legal issues attached to it
Which Option is Best?
Even with the security of investing in the housing market, there is still risk associated with trying to flip a home. So which is better – renovating a fixer-upper or securing a buy-and-hold? This will vary depending on your available funds, the amount of time you’d like to commit to your investment, and the homes available in your area.
If you’re prepared to weather the highs and lows of a home renovation project, you might be drawn to working on a fixer-upper. Those who pursue this option should have cash or a credit line to support the project since financing can be difficult. Though you will likely reap the rewards of forced appreciation, keep in mind that you won’t see a return on your investment until you sell the home.
The buy-and-hold route might be better suited for you if you’re not willing or able to invest time and labor into repairing a fixer-upper. You can easily finance a home, rent it out for a few months or years, and collect a generous ROI. But remember that you will be in charge of paying for your mortgage every month regardless of if you have a tenant or not.
The Bottom Line
Whether you take on a fixer-upper or choose to buy-and-hold, flipping a home can be a great avenue to multiply your money. Plenty of individuals will realize gains relatively quickly. First-timers might need some extra time to get their barrings but with such a safe investment strategy, you can rest assured that if you plan properly and understand all that’s involved in flipping a home, you’ll find success.
Find Your House With a Real Estate Agent
Finding a property like this on your own can be challenging, even if it’s not your first time. Let me help you find the best property for your needs. I’ll search for the perfect opportunity for you to make a valuable investment. Contact me when you’re ready to get started.