Mistakes First Time Home Flippers Make
Flipping houses may seem like a simple process if you watch one of the many shows on TV that highlight the home flipping process. If you want to dip your foot into the home flipping world with the hope of being successful, here are 6 mistakes rookies make and how to avoid them.
1. Over Improve the Property
First time home flippers often want to put their own personal stamp on a home and the result ends up putting more money into the house that will not pay off. The buyer will not notice the difference between an $8 per foot versus $5 per foot for tile. The $3 per foot can have a huge impact on the flipper’s budget. It is wiser to go for middle of the road finishes and either save the money or put it elsewhere in the flip. When designing the house you will need to appeal to the masses and make sure that the finishes are in style.
2. Failing to Evaluate the Bones of the House
It is crucial to evaluate the infrastructure prior to purchasing the home, good bones of a home will mean a different project than a home that needs work on the infrastructure. A home inspection is a general inspection that will give you a good idea of the condition of the roof, HVAC, plumbing and electrical systems. If there are any red flags in the home inspection, it is critical that the home flipper investigate further. If the infrastructure does need work, be sure to incorporate these repairs in your budget.
3. Overpaying for Properties
While investing in real estate can be profitable, many people get swept up in the negotiations and refuse to walk away from a potential deal. Prior to even submitting an offer on the potential property, do your research: talk to a knowledgeable real estate agent who can give you a realistic price on what the house is worth. Based on that recommendation pick a maximum price that you are willing to pay, keeping in mind that repairs and closing costs need to be accounted for. If you cannot get into escrow for your maximum price or less, walk away. Failing to do so may result in the home flipper losing money.
4. Being Unprepared for Problems
Always, always have money set aside for unexpected problems or problems that cost more than expected. It is recommended that home flippers can be prepared for unexpected problems by having 25% more cash in your budget for the renovations or repairs.
5. Don’t Save a Dime to Spend a Dollar
Hiring the cheapest contractor you can find or doing the cheapest fix may not be the best option. Often this route ends up costing more money in the long run. It is often better to evaluate all options and make a decision based on what is best for the property and future buyers.
6. Was the Flip Successful?
Just because the property was sold for more than you bought it for does not mean that the flip was successful. This may seem obvious to people, yet I have talked to multiple people who fail to take into account the remodel/construction costs on a project. If they added those numbers to the price they bought the property for, then it would be obvious that they in fact lost money on the flip. Be sure that you can sell the property for more than you bought it AND include the renovation costs in this number.
Home Flipping is not a project to be taken lightly and extensive research is needed prior to jumping in. During the home flipping project the flipper will need to do research and have a detailed plan prior to purchasing a property.