Risks of Flipping Houses

​Learn about the risks, perils, pros and cons of flipping houses.  

Risks of Flipping Houses

How to Flip Houses / Risks of Flipping Houses

Overview

Flipping Houses can be a risky business.  There are many things that can go wrong on a rehab project which ultimately can cause you to lose money, cause emotional and financial stress, and put your house flipping business at risk.

​In this lesson we are going to discuss the potential risks of flipping houses so you understand the risks before you purchase your first flip project.
House Flipper
FAQ
What are the risks of flipping houses?

Risk #1: Lose Money!

The most obvious risk of flipping houses is losing money.  The worst thing that can happen on your flip (besides someone dying or being severely injured), is that you spend 4 to 6 months rehabbing a house only to wind-up losing money on the project.  

There are a number of mistakes that can cause you to lose money on your rehab project:
If you really want to be discouraged, checkout this full list of Things That Can Go Wrong on a Flip
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Reality check
Remember, if you do lose money on a project think of it as tuition to the 'School of Hard Knocks'. Failures, mistakes and losses often provide the best learning opportunities. Take a step back and review your project mistakes & failures to assess what went wrong and how you can prevent those mistakes on future projects.​

Risk #2 Stress

Emotional Stress
There is no way around it...flipping houses is a stressful business.   No matter how great of a plan you have in place, and no matter how much you try to minimize risks, things will go wrong on your rehab project.  Construction will be delayed, there will be change orders and you will miss deadlines which will cut into your profit.

Financial Stress
Flipping houses requires a lot of capital.  

If you are using your own money it can be stressful watching your bank account shrink as you dump what feels like an endless amount of money into a property that you won't get back for several months down the road.  Even worse, you are racking up huge credit card bills buying materials for your projects, which could potentially be damaging your credit score.

If you are borrowing outside funding, the pressure will mount to complete the project so you can payoff the loan and expensive interest payments before the loan expiration.
House Flipper
FAQ
So, how can I minimize these risks?

Risk Mitigation #1 Educate Yourself

​Before you buy your first flip you need to have a fundamental knowledge of real estate and house flipping so you can make the most informed, best decisions when analyzing your prospective deals.

Luckily for you, we provide a completely free Step-by-Step Curriculum on How to Flip Houses that teaches you the basics of analyzing deals so you can make smart purchase decisions.

Risk Mitigation #2 Buy the Property at the Right Price

You Make Your Money When You Buy'.  Buying a property at the right price is the most important thing you can do to minimize risk and ensure you make a profit on your flip.

How to Analyze a House Flipping Deal

Risk Mitigation #3 Be Conservative Estimating ARV

Optimistically over-forecasting what you can resell the property for is one of the biggest and most common mistakes made by new house flippers.  When forecasting your After Repair Value use the lower-range of comparable prices to ensure you have a conservative After Repair Value.

How to Accurately Predict the After Repair Value

Risk Mitigation #4 Including Contingency in Repair Estimates

Under-estimating repairs is another very common and costly mistake made by new house flippers.  It's important to include extra contingency in your repair budget to help cover any unforeseen costs and change orders that will inevitably arise on your project.

How to Estimate Rehab Repair Costs

Risk Mitigation #5 Hire the Right Contractor, Not the Cheapest Contractor

Even if you buy a property at the right price, hiring the wrong contractor can still ruin your flip project.  Make sure that you pre-qualify all of your contractors and hire a contractor that is qualified to perform the work, not just the cheapest contractor. You get what you pay for!

Learn the Questions to Ask Before Hiring Your Contractors

Risk Mitigation #6 Ethical Business Dealings & Solid Contracts

​​One of the best ways to prevent lawsuits is to be honest and ethical in all of your business dealings.  Do what you said you would do, when you said you would do it.

Risk Mitigation #7 Ethical Business Dealings & Solid Contracts

Creating an LLC business entity is a strategy that can be used to limit your personal liability and protect your personal assets if something goes wrong on your flip that results in litigation.

How to Create a House Flipping Business

Risk Mitigation #8 Ethical Business Dealings & Solid Contracts

Creating an LLC business entity is a strategy that can be used to limit your personal liability and protect your personal assets if something goes wrong on your flip that results in litigation.

How to Create a House Flipping Business
NEXT: THE BEST WAY TO GET STARTED

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