Flipping Houses: Is it a Good Investment Strategy for You?
Perhaps you are a savvy investor, and recognize that the concern over the global market is a passing affair and artificial in nature. You, the next Buffet, believe now is the time to get into the business of flipping houses. Given the low mortgage rates, and your mostly liquid assets (I think we can all agree that right now the market is too volatile to have any significant portion of your wealth tied up there), you believe buying up a few properties to flip once the market returns to full health is the best way to build your estate.
Flipping houses isn’t as easy as it looks on TV, one mistake can cost you $100k quickly, but it can also be very lucrative in the Encino, Tarzana, Sherman Oaks, and Studio City areas. Before you jump into the deep end, here are some questions you should ask yourself.
- Do I Have the Infrastructure to Flip Houses?
We often hear that it takes a village to raise a child, but it also takes a village to flip houses effectively; it’s a team sport. The first member of your team (you can call them the Nationals or the Astros, depending on who you’re rooting for) needs to be a skilled real estate agent. A skilled agent can identify properties that will appreciate significantly in value, and will be the person at the table negotiating the best possible deal for you. The goal is to buy low and sell high, so why wouldn’t you utilize the services of someone who can show you what house will sell for the most in the next few years while simultaneously getting you the best bargain possible?
Your clean-up hitter ought to be a top notch contractor, who can assist you in renovating your properties in a cost-effective manner. If you are looking to scoop up multiple houses, you can typically get lower rates from your contractor (think Costco, you buy in bulk, and each unit costs less).
- Can I afford to Have These Assets Tied Up While Flipping Houses?
A secondary concept in flipping houses is minimizing dead money (like interest and taxes), so you want a house that you can renovate in under 2 months. Once it is renovated, you have to decide if you are going to hold onto the property (converting it into a rental), or if you are going to put it back on the market. It should go without saying, but while your money is going into the property, you will not have those assets to invest in other lucrative opportunities that arise. Given the market’s volatility, you are likely safe until the U.S.-China Trade Deal is finalized (and probably for about a year after since the market will wait to see if they make good on the arrangement).
These questions must be answered before you begin the process of flipping houses, or you could find yourself underwater very quickly. However, if done right, you could get a much better return on investment than you would by playing the market.
At the Chernov Team we understand that knowledge is power, and knowledge of how to properly flip houses is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.