If you had a dollar for every fix and flip reality T.V. series out there, you might not need the income potential associated with real estate investing at all. This trendy industry has been massively popularized by shows boasting breathtaking redesigns, mind-blowing profit margins and audaciously short timelines—all of which are achievable if investors have the requisite experience and resources. Flipping houses can be a lucrative endeavor, but investors need to do their homework before jumping into this niche market—and yes, that means putting in a bit more legwork than binging HGTV reruns. Here’s a quick look at some of the finer details the on-camera personalities neglect to mention that can significantly impact your fix and flip aspirations.
Unanticipated Costs & Loans
Television fix and flip personalities often have deep pockets. Whether it comes from private equity or the network is footing their bill, it’s a luxury that’s simply not a reality for the majority of new flippers. Novice investors often turn to direct hard money lenders to obtain the up-front costs needed to realize the potential income stream of real estate investing. Regardless of the loan type, there’ll be fees and interest payments associated with borrowing money from a private lender. And while these added costs may seem negligible on paper, they make the type of projects undertaken by reality shows overly risky for the average investor—leaving little to no budgetary wiggle room for labor costs and other unexpected costs that always seem to arise on every project.
Sorry to break it to you, but it takes a bit longer than a 30-minute T.V. episode to complete a successful fix and flip project. Reality T.V. often glosses over the preliminary work that needs to be done before you even start the actual hands-on remodeling, such as finding a suitable property, planning the renovations to be made, and working with a mortgage lender to purchase the property. And once you start knocking down walls, you’ll have to orchestrate the actual work that needs to be done with several contractors. If you don’t have a comprehensive network of preestablished connections who are dedicated solely to your project like the reality stars do, you’ll likely face delays and added costs when it comes to acquiring the labor and expertise you need to pull off the project.
It’s just a part of the fix and flip business, there’s going to be unexpected issues that pop up—and they always seem to arise at the most inopportune moments. Reality T.V. usually make it seem like the hosts had no idea they’d face these last-minute hiccups. And while this sort of feigned naiveté may improve the drama factor for the audience’s viewing pleasure, going into a project blind can be a recipe for disaster in the real world. Fortunately, amateur investors can mitigate the negative financial and time space consequences of hidden rehab surprises via a meticulously planned budget with a devoted ‘disaster fund’ to cover these expenses in addition to carefully researching potential properties before initiating work.
Unpredictable Real Estate Market
It always seems like the reality T.V. fix and flip homes have potential buyers clamoring to submit above-market offers that will result in a hefty profit margin for the show’s hosts. Depending on the location and timing of your fix and flip project, that may indeed be the case, but you need to be aware of the potential ramifications of a delayed resale. Obviously, the faster you sell the property, the better your income potential will be—as properties that linger on the market drop in value the longer they go unsold. Add to that the increased costs of property taxes, interest on your private lender or mortgage lender loan and upkeep costs, and you could soon be well over your head when it comes to financing your lengthy fix and flip project. To help avoid this problematic scenario, you’ll need a savvy real estate agent, or, if you are licensed yourself, put in the extra work to connect with potential buyers and hook them on your completed rehab project.
The Lowdown on Real Estate Investing
Despite the fact that reality T.V. often brushes over the more challenging aspects of the industry, house flipping is still a fantastic option to achieve financial and professional independence. As the old saying goes: “An ounce of prevention is worth a pound of cure.” Put in the work up front, and you can be well on your way to becoming a successful real estate investor.