You’ve seen the TV shows, read a few blogs and watched some videos on YouTube. This house flipping stuff seems like a no brainer! While it’s undeniable that fixing and flipping a home can result in huge profits in a short time, it takes a lot of knowledge and hard work for it to really pay off.
Along the way, there are many things that can go wrong, meaning that even the most successful flippers misstep now and then. For newbies, a little knowledge can be a dangerous thing, and without thorough research, planning, and budgeting, a number of mistakes can totally ruin a house flip. Here are 7 of the most common mistakes to avoid!
Not Knowing Your Numbers
One key skill in successful house flipping is to have a firm grasp of how much everything is going to cost. When we say everything, we mean every little expense along the way. You need to know how much your building permits will cost, as well as things like labor and materials, and that’s just to budget for the actual renovation work. Additionally, you’ll need to be on top of closing costs, commissions, taxes, insurance, and a great many other hidden fees. Without this knowledge, you can’t possibly make an accurate budget and are bound to run into unexpected costs, which can quickly eat up your profit margin. One bonus tip here, make a watertight budget and add 20% to cover your back.
Not Making a Plan
You’ll also need a solid plan, based on market research and an airtight budget. For example, knowing how holding costs can impact your profit gives you a good idea of how long you need to complete the project and sell the house for it to be worthwhile. You can then plan the renovations in such a way that you know you’ll be finished in time to go to market and gain larger profits. Build up good working relationships with contractors and other real estate professionals to ensure you’re all on the same page.
Not Understanding the Market
By not carrying out important market research, you’re walking into a minefield of potential mistakes. Everything from the location you choose to the level of renovations you make depends on a thorough understanding of the local market. You need to know who is likely to buy your flipped house, and what they will expect to pay for a house in the neighborhood you’ve chosen. If you don’t know these figures, you can easily price your home out of the market, making it almost impossible to sell, no matter how nice it is.
Borrowing Too Much
Most flips are done without going down the traditional lender route and taking out a mortgage. Instead, most flippers seek the services of specialized hard money lenders, who have more flexible programs suited to a quick buy and sell. Taking on a flipping project means you’re going to need cash for the down payment, or even to buy the property outright, as well as building materials and labor. The last thing you want to do is max out your credit cards on these expenses and hope for a quick sale. If things are delayed and your bills come rolling in, you can quickly find yourself in financial difficulty.
Trying to do Everything Yourself
An experienced house flipper needs a wide selection of specialist skills. They’ll need to be on top of the local real estate market, understand the local regulations and building codes, and have a sound to expert understanding of various trades. That’s a broad spectrum of skills to learn, and if you’re new to the game, it’s certainly overwhelming. However, you don’t have to go it alone, and you really shouldn’t.
If you’re not comfortable with any of the renovation work, you should call in a professional. Likewise, a professional home inspector will almost certainly spot things you can’t, and a qualified realtor will have a much better understanding of both general and local markets and trends. Trying to do it all soon becomes overwhelming, exhausting, and is a shortcut to burning out.
Not Inspecting the House
Nowadays, it’s easy to browse a huge array of homes online. Indeed, you can even buy a home without stepping foot in it. But just because you can doesn’t mean you should. Going into a project blind means you cannot make a proper plan and you can’t possibly hope to budget for it properly. You simply have to rely on luck and hope that things aren’t too bad.
It’s worth hiring a home inspector to go over the place to check for things that you might not have a good understanding of. A thorough home inspection can reveal the small giveaways that point to larger problems. Without going over the home in this way, you could walk in to find the property is infested with mold, or worse, has shoddy foundations, or insufferable damp, among other problems that are expensive and time-consuming to fix.
Undertaking a Huge Renovation
It’s wise to avoid undertaking a huge renovation project at the beginning of your fledgling house flipping career. Indeed, even most pros tend to avoid properties that are too badly damaged, preferring homes that need just quick and easy, mostly cosmetic repairs. Major structural work takes time to complete and costs a lot of money. Rewiring, replacing the roof, repairing the foundations and removing major damp and mold issues are all big no-nos and can lead to your project becoming a money pit.