People often forget that home builders have more control over the building process as compared to the “flippers.” While flipping houses, investors regularly meet with unexpected challenges that include mold, moisture issues, wiring problems, insulation concerns, and even the presence of asbestos in hidden places.
Apart from the unpredictability of the local market, the investors face several other risks throughout their projects. The only way to minimize these risks is by making sound business and investment decisions. Apart from experience, it takes quick decision-making and problem-solving skills to make the right decisions that pave the path for success. To learn more about minimizing risks, visit the Phill Grove official website.
Here are the top 7 risk factors every “flipper” will face in 2019 –
1. Demographic shift – The real estate market is never steady. Just like other markets, it is growing and exhibiting some level of vulnerability. The demographic shifts within a market will tell you whether you need to mellow your marketing tactics or add some aggression to the same.
2. Market economy – As of 2019, the housing market has not been very kind to millennial buyers. The interest rate of home loans, mortgages, and even education loans will give you an idea about your target buyer demographics. Rising interest rates will deter young buyers from high-end flipped properties this year.
3. Valuation – The after-repair value (ARV) of the property will determine how quickly a flipped home will sell in the market. If the ARV is too low as compared to the purchasing price (investment), then the real estate investor is looking towards significant losses. Having some training in real estate investment can help one estimate the ARV of a property irrespective of its location and size.
4. Hidden expenses –The cost of hidden repairs does not depend upon a particular time of the year. Sadly, almost every house has hidden repair costs, and it can range from minimum rework on insulation in the basement to extensive repair of flooring or complete re-roofing of the house. Keeping a 10% contingency should be mandatory for every aspiring “flipper” in 2019.
5. Contractor costs – The cost of hiring contractors can increase in 2019 and 2020, depending on the tax reforms. However, you should not choose a contractor depending upon his or her charges only. Additionally, have everything in black-and-white, and don’t leave anything out of the contracts. Mention warranty and repair details on the paperwork itself.
6. Not enough capital – It might sound bizarre to newbie investors, but you might end up with lesser than enough money necessary to rehab a property. Apart from the unexpected and hidden expenses we have mentioned before, you may forget to consider the cost of filing for a permit or paperwork. The prices of raw materials necessary for the flipping can increase. These are all valid reasons flipping teams often find themselves strapped for cash during ongoing projects.
7. Absorbing the loss – Unfortunately, not a lot of properties are selling in the big cities right now. The economy is not favorable for new homeowners and aspiring buyers. The worst-case scenario for any flipper would be to absorb the cost of the rehab or renting the property for the short-term.
Some of the risks we have mentioned above are serious enough to propagate bankruptcy among expert real estate agents.