All high stakes industries are plagued by myths that distort public perception about them. They get around faster than the truth – why, sometimes, they seem more believable than the truth. People latch onto myths and enthusiastically spread them about. In short, they are lies or falsehoods repeated so many times they start sounding like the truth. The real estate industry, which has nurtured several rags-to-riches real life stories, is no exception. The stakes are always high but so are the payoffs in this industry – a fact that routinely draws energetic and hardworking individuals. However, a number of these newbies, who want to pursue a career in real estate investing, particularly house flipping, are often discouraged by the myths that surround the industry. They play on their fears and make them believe that things in their past, like a bad credit history or an unfinished college education, can derail their real estate aspirations.
But myths are just that: Half-truths that get perpetuated by people who failed to make a mark in the industry; distorted by time and changes in the market climate. Read on to discover six myths that are preventing people from venturing into the house flipping business.
1. No Money No Flip
You are not alone if you believed it when they said you need to have a sizable amount of money to begin flipping houses. In fact, it’s one of the most widely believed falsehoods about this business. However, it’s not true. While you do need money to flip houses, you needn’t, or wouldn’t, use your own money for a very long time.
Most successful house flippers began by looking around them (think friends and family) for sources of money they could tap into. Or, you could approach a money lender or workout a partnership with your general contractor. If everything goes according to plan, all parties (including you) will have made a neat profit.
2. Bad Credit Score Means No Funding
Home buying and bank loans are so intrinsically tied in our heads that we assume that any type of real estate deal involves mortgage payments to banks. And we all know that the cleaner your credit history, the better your chances of securing a bank loan. But if your credit history isn’t good enough, then they make you believe it’s time to kiss that dream goodbye. Well, it’s not.
While bank loans and a good credit history can definitely help you finance your flipping business, they aren’t the only ways to start out in this field. A private investor is the next best alternative. It could be anyone in your circle – a family member, a friend, a coworker or a well-known acquaintance. They are people who are looking to diversify how they invest and grow the disposable income they possess.
Money to invest is all around you but anyone knows that it’s not readily parted with. Before you go looking for private investors, you need to go driving around neighborhoods looking for houses that could certainly use a flip. You need to market yourself to motivated sellers and learn to generate leads even when you’re sleeping. Once you have a great deal, that’s when you approach the subject of money. All your hardwork will pay off when your potential private investors understand the value in it for them. The money will then automatically begin to flow.
3. Only Experts and Handymen Survive
Reality TV shows on house flippers perpetuate some of the most common myths in the industry. For instance, they show these star flippers wielding hammers and power tools; they show them getting their hands dirty in trying to DIY their entire flip. And there are people in the real world who look at these shows and decide against venturing into house flipping. They’ve bought into the myth that they need to be a construction genius and professional handyman rolled into one to survive in this business. If that were true, all flips would take forever to complete and there will be nothing left in terms of profit. That’s clearly not the case.
The truth is that successful house flippers employ general contractors who not only get the job done professionally, but get it done faster. Many times, even the general contractor hires subcontractors for highly skilled jobs within the project. Your takeaway? While knowledge about construction and remodeling are a definite plus, they aren’t prerequisites to begin flipping houses.
Imagine how many more motivated sellers you could reach while contractors work on your flip. There will be upfront costs to hire these professionals, but it will give you valuable time and space to concentrate on new leads and other aspects of your business like marketing and so on.
4. House Flipping is Risky
Real estate is a volatile industry that’s heavily influenced by the market. But, this truth is not the reason why you’re thinking about giving up venturing into house flipping. The myth that it’s too risky is behind your hesitation. While market conditions may dictate your profits and losses in the real estate industry, there are several ways you can safeguard your interests.
Begin your house flipping journey with a short stint of real estate wholesaling. It’s the safest way to ease yourself into the business, with very little or no investment required from you. Invest a portion of the sizable wholesaler fee to educate and market yourself as a house flipper.
Get your ducks in a row before you actually begin your first flip – learn from reliable sources what the property will sell for after repairs; using a professional home inspector, gauge whether the fixes needed are structural or cosmetic; investigate how long it will take and what you stand to make from the flip before you make your first investment. Your first flip has the power to make or break your business so tread carefully.
5. If You Flip Sell Immediately
If there’s one myth that may actually be closer to the truth than most others, it’s this: Holding on to your flipped house can eat away big chunks of profits you made doing the flip. However, it’s still quite misleading because it conveniently ignores the fact that there are always alternatives to try in any situation.
Many house flippers double up as buy-and-hold real estate investors. Simply put, they find houses to flip and once the flip is done, they hold on to the property to rent it out. Some may even move into the house they just flipped.
However, it’s important to remember that holding on to a completed property and leaving it unoccupied can invite vandals; and, result in hefty monthly maintenance and insurance bills. Decide well before project completion, if you’re going to sell the house or hold on to it as a rental property.
6. It’s Your Ticket to Riches
Of all the myths that are out there, this is the only one that provides motivation, albeit for the wrong reasons. There are many real estate “experts” who claim that the house flipping business can make you rich overnight. Add to such claims the highly edited and dramatic reality show content that’s influencing a lot of youngsters.
It’s the perfect recipe for disaster because in reality, no legitimate business can make such promises, leave alone deliver on them. Like any other business, your house flipping career needs to be built on elbow grease and determination. Instead, if you buy into cheap marketing tactics that try to convince you otherwise, then you need to hit the reset button.
Yes, there are millions to be made but not right at the heels of your first flip, or even your tenth flip. Focus your attention on building profits slowly, but steadily; don’t try to cut corners and don’t rush into anything you may regret.
The Bottom Line
While there may be some truth to each of these myths, they are mostly things you can work around or find alternatives for. Today, especially with all the reality TV that focusses on making house flipping look like a walk in the park, it’s easy to misunderstand what is actually required and what isn’t.
Know that it’s possible to build a house flipping business from scratch, with little or no seed money. Most successful house flippers began that way, starting as real estate wholesalers and working their way into the flip-and-sell business. The bottom line is that it’s possible for anyone to get successful at house flipping as long as they know how to minimize their risks and when to cut their losses.