Flipping Houses: A Risky Trend or a Wise One? (Part One)
Posted on: June 5, 2015 by Aegis General
The idea of flipping a home is appealing to many; what a great way to turn a quick profit, right? This is enticing to most entrepreneurs, however they don’t always consider the risks involved. For example, most of these investors don’t consider their need for Insurance for Flipped Houses until it’s too late, as many agencies don’t provide this type of policy. It’s not just the insurance implications that are involved with this risky investment that homeowners need to consider though; there are many other factors that come into play.
Real estate investor Danny Johnson recently revealed some basic risk factors that are involved with flipping a house. These include:
- Underestimating repairs
- Underestimating holding time
- Overestimating resell value
- Overpaying the contractor hired for repairs
- Underestimating buying and selling costs
That’s not all though. Taxes also post a threat; depending on locality, the city may increase property taxes once the renovations on a flipped house are complete. While this may not affect the homeowner directly if they’ve already sold the property, it could actually prevent buyers from purchasing as they don’t want to front the higher tax bill. In addition, any profit that the homeowner makes on an investment property will most likely be subject to capital gains and taxes, meaning profit could be lost to taxes.
Flipping a home requires a lot from the investor; they must find the right property to begin with, correctly anticipate the costs that will be involved, deal with contractors and Realtors, try to meet deadlines, and find a potential buyer. This is enough to deter even the most careful investor.
That being said, however, there are benefits to flipping a home. Doing so could reap very lucrative rewards, which we will discuss in our next blog post. At Aegis General Insurance Agency we offer a variety of specialty insurance solutions including specialty homeowners, dwelling fire coverage, unoccupied dwelling, and more. To learn more about our personal lines or becoming a producer with us, contact us today at (866) 662-5752.