A Flip or A Flop?
House Flipping has become is the as popular today as day trading became in the 90’s. Everyone dreams of making big profits and becoming the next real estate investment mogul. It is easy to watch the shows on television and think it is easy. They make it look so effortless. You buy a house. You fix it up. You sell it and suddenly you have an instant profit.
No one starting in house flipping was born wise. Wisdom is accrued over time and through making mistakes and getting educated. Some of these mistakes can be costlier than others but they can all take a toll on the profits you hope to make. Hopefully, you go on the next project with your newly found knowledge and make better choices. I have compiled a few of the most commonly made mistakes for this article.
- Only informed minds can make educated decisions. To be successful in this business, you need to buy the right properties and at the right price, you need to have the right knowledge of finances, you need to know which renovations will make you money versus which ones will cost you, and you need to be sure that you allotted for hidden expenses and for enough time to get the project done correctly. A good deal only becomes a great deal if you are prepared, educated, and vigilant about all the facets of flipping a house.
- Money, money, money…. Dabbling in the real estate market is an expansive proposition. You need to be prepared from the beginning. There are the details of finding adequate and low-cost funding for your project. It goes on to include the costs of renovation. Often, taxes, utilities, time constraints, and the unexpected are forgotten. The funds for such things have not been allocated to cover these costs. The budget will take the hit. Always keep in mind that every dollar you spend in the process you need to recoup in the sale before you can see a profit.
- Times waits for no man. Like making decisions about finances, you must also consider how much time you will really need to do the renovations before you can put the property back on the market for resale. You need to have a good handle on the fluidity of the project. Overestimating and underestimating time allowances can cause delays in getting the work completed.
- The jack of all trades is the master of none, so you need a team. It is unrealistic to believe that you can do all the work yourself. The equity truly lies in the sweat you are willing to put in this is true. However, if you are not an expert in aspects of the project that lack of experience will probably show in the finished project. It can be a definite deterrent to selling your property if it looks shoddily done. Remember also, that even though you do the work yourself, skipping permits and inspections can be costly mistakes. You might be determined to do most of it on your own, eventually, however, you will need to build a team of trusted craftsmen, suppliers, lenders, and real estate agents. Not only do you need to find people that are dependable, will get the job done proficiently, and on time, but your team will also need to trust you to treat them with respect, pay them on time, and not to make the job a nightmare by being overly critical or changing your mind repeatedly.
- Jumping the gun. Some flippers are notorious for wanting to put out the “for sale” sign before renovations are you completed. The conflict arises when potential buyers are unable to see your “vision” for the property. They will instead see your mess and the construction then feel overwhelmed. They might also begin nagging for finishes that were already planned or even worse for changes you had not allocated for in your renovation budget.
- This is not your home but your investment. In designing your flip, take yourself out of the equation. All the extras you might want in a home may not be the needs of John Q. Public. Make choices in design and color that are universal. You can do this by researching current trends in the marketplace and/or walking through any open houses in the general vicinity. If a buyer does not love your big-ticket finishes, they will balk at paying a big-ticket price. Remember, that creating a beautiful, functional, blank canvas that will appeal to the masses is the objective.
- Why didn’t I think about that? Often in design people are so involved with the whole picture that they forget it is made up of little pieces. Neglecting small easy fixes and little items like light switches or scuffed door jams will be very noticeable in a newly renovated home. Often causes the buyer to wonder if you here as haphazard in your renovation process as well. In the end, the little things can cost you big bucks.
The Bottom Line
Do your research, get educated before you get involved. Seek help and advice when you need it. The work you do will speak for itself. There is money to be made if you do it well and avoid some the pitfalls. Otherwise, your flip may become a flop.