5 Apr 2017

Mark Zawaideh

Home Buying Business: Long-Term Investment or Flip?


invest-or-flip Buying a home for investment purposes can change the process, both in terms of what you’re looking for during the house hunt, as well as how you want to handle repairs that come up during an inspection. Before the purchase is completed, a major question comes into play: do you keep the home or flip it? Both options have their benefits, but what exactly do these terms mean?

There are quite a few television shows dedicated to home improvement these days, and a popular decision is for homeowners to buy a home that is in poor condition and make nice, yet affordable, upgrades with the intention of selling it at a substantial profit. While it requires a lot of sweat equity, the profits that can be earned with this type of remodel are substantial.

Others choose to renovate their home, and might want to live in it themselves or rent it out after the upgrades are complete. Again, this requires a great deal of work if done without paying professionals for their services, and the profits might look slightly different. Here is a little more detail about these options available to enterprising investors.

A Long-Term Strategy?

When a new home will be kept instead of sold for profit, buyers should think about what their goals are for the property. Some people like to renovate with the intention of renting the property and helping to offset their mortgage and construction costs with monthly rental income. Others want to renovate the home to their liking so they can live in it themselves, and end up selling much later down the line at a significantly higher price than what they paid.

Renovation uses the idea of improving upon the existing home structure. Rather than completely changing the floor plan or adding another room, a renovation simply upgrades run down bathrooms, kitchens, and other elements with more desirable amenities. If the decision is made to live in the home, the quality of the fixtures might be higher than if the buyer is looking for a more cost-effective way of getting the home ready to rent.

Think about the cost not only in terms of money but also time, to complete a renovation yourself versus hiring a contractor to do it. If construction skills aren’t your strong suit, it may make more sense to have a professional complete the repairs. While it does bring up the cost, often thousands of dollars, it will ensure the job is done right.

Flipping A Home Isn’t For The Faint Of Heart

It has become a popular option on TV to buy a rundown home and flip it to make a considerable profit. But how does that differ from a long-term strategy? When a home is flipped, the upgrades and changes made to the property are typically more cosmetic and are made in an attempt to clean up the home. Things like light fixtures, toilets, and wall paint can be changed easily and without much money, whereas a kitchen remodel takes time and can create costs that are difficult to recuperate.

Flipping, at its core, is used purely for making changes and selling the home as quickly as possible to make the most amount of money. A detailed remodel that lasts months will find the owner making mortgage payments and spending more money on the home than he or she might be able to recover.

Depending on the level of attention the home needs, a flip might only cost a few thousand dollars. In this case, it may be more cost effective to do the work yourself instead of hiring a professional. This investment strategy takes a lot of hard work, but can yield enormous profits in a relatively short amount of time.

Understand the Challenges

Whether the decision is made to renovate or flip, both options give the homeowner the ability to do the work themselves and control their costs. Some people choose to utilize both of these options to create a portfolio of properties and use real estate as a successful investment strategy. Just remember that improving a home can take a lot of work and sometimes unexpected costs can come up. Be sure to pace yourself and have a plan, because a home is no small purchase.

Topics: Buyer Tips & Mortgage News