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If buyers honestly assess renovation costs, property value, neighborhood quality, and their available funds up front, they can often get more house than they otherwise could afford.
Real estate flipping can be tempting, but it’s risky. A simple example: buy a run-down house for $125,000, spend $10,000 on cosmetic updates, and another $10,000 on fees, inspections, holding costs, and commissions. Sell it for $175,000 — your total outlay is $145,000, leaving a $30,000 profit, or about a 20% return. That looks appealing, but many projects don’t go that smoothly. High returns come with high risks, so do your homework and keep costs under control.
I learned this working with my parents, who built wealth renovating and reselling homes. Over time I bought properties at sheriff sales, dealt with bad tenants, and took on dilapidated buildings. With low interest rates and some capital, time, and a willingness to work hard, flipping can be a path to building wealth — but only if you’re prepared.
Research and access to capital are essential. TV shows that promise “no money down” are unrealistic. You need cash for renovations and a cushion for unexpected expenses. Before you start, take a personal inventory: do you have the time, problem-solving skills, and flexibility to handle problems that arise at odd hours? Real estate is illiquid; unlike stocks, you can’t sell instantly if you need cash.
Make sure you have funds for a down payment, remodeling, and carrying costs if things go wrong. Savings are best, but credit cards, a home equity line, or renovation loans are other options. Be cautious about borrowing more than you can repay quickly — high interest can erode profits.
Know your market. Use resources like Zillow and Realtor.com to study sold prices and current listings, and check average days on market to estimate how long a renovated property might take to sell. Learn local contractor pricing — renovation costs can vary widely by region.
Be able to analyze deals properly. Tally the purchase price plus appraisals, inspections, and closing fees. Add renovation costs, then include about 25% extra for surprises. Factor in several months of holding costs in case the property doesn’t sell immediately. Subtract all projected costs, including real estate commission, from your expected sale price. Aiming for at least a 20–30% projected return is a sensible threshold for many investors.
Start with cosmetic work: fresh paint, new carpet, updated fixtures, and minor electrical fixes are cheaper and simpler. Major systems — plumbing, heating, and HVAC — can quickly balloon costs and complications, so leave those until you have more experience.
Invest close to home when you’re starting out. Being nearby makes it easier to respond to emergencies and manage repairs. Remote properties are better suited to more experienced investors. Lower cost-of-living areas — such as parts of the Midwest and South — often make it easier to buy and renovate an initial property because both purchase and repair costs tend to be lower. In high-cost regions, like the San Francisco Bay Area, flipping is much harder unless you already have significant capital or the market conditions are favorable.
If you like real estate’s diversification and wealth-building potential but lack the cash or time for hands-on investing, consider Real Estate Investment Trusts (REITs). REITs offer exposure to real estate without the large capital outlay or the need to manage properties directly.
Practical experience reinforces these lessons: hidden problems, like plumbing issues, can quickly eat into profits, and projects often require a contingency budget and patience. Flipping isn’t for everyone, but with careful research, sufficient capital, realistic expectations, and attention to detail, it can be rewarding.
