You’re trying to buy a house at one price and sell it for a higher price. Seems simple! But as we all know there’s a lot more that goes into it than what it seems like on the surface. While you are carefully considering your home purchase, there are some situations where it makes sense not to buy that particular home or to wait. Here are the top 5 reasons to say no to buying a house. Gorilla Capital is here for you when you’re ready to buy, but sometimes finding the right situation takes patience.
1. Unrealistic margins
There are many “hidden” costs in the actual costs of buying and flipping a home. Besides repairs, you may end up spending $5,000 on closing costs, but there are carrying costs, which are the ongoing costs of owning a home, that you may not have taken into consideration. For example, mortgage payments, property taxes, insurance, utilities, getting wells checked, etc.
Your profit margin depends on many things that are beyond your control, such as weather (if you’re trying to sell and weather keeps people from driving around and going to open houses), time on the market which is always unpredictable, and difficulties with contractors or supplies for repairs. If the profit margin is already thin and these unpredictable things might cause problems, it might not be the right house for you.
2. Iffy ROI
If you got an inspection and things weren’t as perfect as you thought they were, this could be a sign that the project is too big of a mouthful. Novice investors often overbid on property, which reduces their profit margin. They may also underestimate the cost of repairs. If the return on your investment is not as clear as you’d like it to be, rethink the purchase.
3. Your employment conditions are uncertain.
For many people, at least at first, fix and flip is not their only source of income. Many people maintain regular jobs in addition to the home rehabbing. If this is the case for you, how stable is your current job? If you rely on the income from your job, make sure you’re comfortable with what the future looks like. Of course, no one can predict the future, but if you have an inkling that things might be changing in the next year for you with regards to your employment, you might want to reconsider the purchase.
4. The neighborhood’s long-term viability is uncertain.
You want your home to be desirable to a wide variety of people. That’s why you use neutral paint colors and keep staged furnishing simple, right? If you’re satisfied that it’s a good location on the surface, check out some of the other issues in the neighborhood. Are crime rates going up? Are any of the schools talking about closing because of declining enrollment?
Is the city planning a construction project or zoning change that could impact your home? If any of these things are happening you might find that the property isn’t the good investment that it seemed at first. It could be harder to sell down the road.
5. You need to take out a loan.
The federal reserve recently raised interest rates. Rates have been low for a while, but some experts believe that they are artificially low. If that is the case, payments on a future loan may end up costing you more money than you expect. If a significant portion of the funds you have to use for your fix and flip are in the form of loans, you might want to reconsider until you can purchase the home and rely less on loans.
Do you have more questions or want to talk to an expert about how Gorilla Capital’s funding program works? We have a proven track record and are here for you whenever you’re ready. Get in touch!