5 Reasons Why You Shouldn’t Flip Houses
I know I know… you’re shocked by the title 5 reasons why you shouldn’t flip houses.
You’re constantly bombarded with people telling you how great flipping houses is. How much money you can make flipping houses. How easy flipping houses is!
While flipping houses is great I’m here for a dose of reality. And the reality is, flipping houses isn’t always glamorous – in fact, it almost never is. It’s easy to lose money, mistakes and oversights are commonplace and contractors can make or break you. So I’m here to tell you why you might want to reconsider flipping houses.
While I’m sure I can come up with at least 32 reasons not to flip houses, I’m listing my top 5 reasons why you might not want to get into flipping houses… and then I’m going to tell you to flip houses anyway. Okay?
5 Reasons Why You Shouldn’t Flip Houses
1. There could be liens against the house.
If you don’t know what liens are, DO NOT buy a house at sheriff sale and definitely don’t buy one from an online auction unless you get title insurance. A lien is kind of like a notice attached to your property letting everyone know that a creditor claims you owe them money. More often than not, these creditors don’t get paid until the house sells, but they attach these claims to the home to make sure eventually, they’ll get what’s owed to them.
There can be all kinds of liens that you don’t know about against a house. Liens for work performed by contractors, liens for water or sewer, liens for taxes and in some areas there are even liens for utilities! You can have a preliminary title report done to try and avoid liens.
2. There could be underlying issues you and your inspector don’t notice.
For instance, if you both miss a huge crack in the basement wall or a sloping of the porch and attached bedroom, that could add not just thousands but TENS of thousands onto the renovation costs. Sure you could try and go after the inspector, but that takes time and money and when you’re flipping houses you usually don’t have a lot of either to spare.
And most of the time, you have to forgo inspections when you purchase a property to flip if you want to be competitive with other flippers. Because believe it or not, most flippers don’t get the homes inspected before they buy them. They either do it themselves or bring their contractors along to check the place out.
3. There could be issues you couldn’t have even anticipated.
Even if you got the home inspected and had the best inspector in the world, there are some defects that you can’t possibly forsee. A home might perform perfectly fine during an inspection but after a few weeks of contractors in and out and constant use of the plumbing it might reveal a big issue. For example, it could reveal roots in the sewer line which entered from a large crack along the entire sewer line – which needs to be replaced.
You could also encounter severe mold issues that aren’t revealed until drywall is torn down or wide foundation cracks underneath flooring. These things happen!
4. You could wind up selling at the wrong time.
Like what happened to us on our first flip, you could wind up finishing the house at the “wrong time of year” to sell. Then, you’re stuck holding the property and paying taxes, insurance and utility bills for way longer than expected, blowing your budget.
For example, we put our flip up for sale in the middle of October and it sat for weeks. We had a good number of people come through but none that were qualified to purchase the house (although they liked to waste my time up until I asked for a pre approval.)
The end of fall and winter are terrible times to sell a house for a number of reasons (at least 26). The top two? Parents don’t want to pull their kids out of school, especially in the beginning of the school year (remember, kids go back to school at the end of August/beginning of September.) And second, no one wants to move in the winter and just before or just after the holidays! Luckily for us, we found a month to month tenant who just needed somewhere to go temporarily after a divorce… but was an exception and definitely not the rule when it comes to finding a tenant while flipping houses.
5. There’s a thing called right of redemption.
You read that right. In some states there is something called the right of redemption. I’m specifically referring to a post-foreclosure statutory right of redemption. Basically, the previous homeowner that lost it at foreclosure has a period of time in which they can redeem the home after a new homeowner/investor has purchased it (sometimes up to a year in some states!)
However, the price of redemption is often expensive including the original sale price, interest and all kinds of fees which make it nonsensical to purchase it back- but it happens!
If you want to know if your state has post foreclosure right of redemption, check out this website. (I don’t claim that this information is accurate and I am in no way affiliated with that site.)
With all that being said…
Even though this entire post is dedicated to why you shouldn’t flip houses… When it comes down to it, I still say GO FOR IT! If you can stomach the ups and downs of flipping and are one of those people who understands that mistakes are just an opportunity to learn, you’re on the right track. So don’t let the things I said above scare you away from pursuing your dreams of flipping houses. But definitely always keep them in the back of your mind during your flipping journey.