The Top 7 Mistakes to Avoid During a Fix and Flip
Whether you’re new to the game of flipping houses or a seasoned real estate developer, here are the top mistakes that negatively impact the profitability of your work. Avoiding them will certainly add to you bottom line and propel you forward on your road to success.
Overstepping the budget
It is difficult to overstate the importance of this point. Once you set a budget, stick to it. A large component of this point is all about buying at the right price in the very beginning. Don’t extend your budget for houses that you have become emotionally attached to. In fact, it’s best to not feel any emotional attachment to a property at the outset. If you dig deeper at the very start, you are going to have to reduce or re-allocate the budget for essential upgrades or for contractor costs. This could have disastrous effects at the end when you’re trying to make a profit by selling the house, as the costs involved reach potential revenues.
Not inspecting the home, or having it inspected before purchase
This could potentially lead to some very unexpected and costly fixes in the long-run. It’s best to get the house inspected instead of inspecting it yourself, because an expert will be able to tell if a certain issue is caused by an underlying major or minor problem. You could save yourselves up to thousands of dollars just by making sure to go through this precautionary measure.
Not doing research on the neighborhood
A vital aspect of selecting a house for a rehab project is its neighborhood. This is a key factor in determining the attractiveness of the house to customers. For example, it is best to not buy a house in a neighborhood that sees a lot of competition between houses, as that would drive down the price at which you could sell the renovated house to potential customers.
Additionally, don’t forget to check out what major centers the neighborhood has. Make sure you know if the house is situated near good schools, or a major highway, or a large retail center. Based on the type of customer you are targeting, these could be essential points on which you could make a profit. The neighborhood should ideally be one that is promising and has a reputation for quick sales.
Doing the upgrades wrong
Too many people make one of two mistakes: either underestimating or overestimating the essential upgrades the house needs. Obviously, some properties don’t need much beyond a new coat of paint or new drapes. But quite a few properties will need their plumbing seen to, or require new appliances in the kitchen. In such cases, the short-term real estate investor would do well to actually spend the cash on these upgrades. In doing so, you would be able to reap higher returns when the time to sell the houses comes around, since they would now be seen as more attractive and valuable. It’s therefore important to see in what cases it would be more profitable to invest in upgrades. You’d make a good profit on certain properties after investing the bare minimum, but others would be more profitable after more extensive upgrades.
On the other hand, there are those who go beyond their limits when it comes to upgrades. Remember, it is vital to first define what basic necessities the house requires first. Again, you should do some research on the neighborhood so you can have an idea of the kind of refurbishment that is commonplace in that area. If the houses around yours appear to employ designs and finishes that are basic, it’s best to not go overboard with fancy embellishments on your own project. For one thing, that could make your house look out of place. For another, you will probably find it hard to sell costly property in such an area.
Doing the fix and flip all by yourself
Successful house flipping tends to be a team effort. This is especially true if you’re new to this work. Without a team, it is very likely that your project will fail. A home rehab project involves the investor being responsible for the costs of maintaining the house, such as property taxes, utility bills and home association dues. Electing to undertake the project on your own would then entail additional responsibilities, which would take a significantly larger amount of time. Even if you save on the cost of labor, you will still incur significant carrying and maintenance costs. Plus, as a non-expert, you would be more likely to make basic mistakes that could have been easily avoided with a team. It is therefore usually recommended to build relationships with a team of house flippers that includes CPAs, general contractors, real estate attorneys and agents and lenders.
Not having a strategy in place
The number 1 mistake is not having a strategy. Never let your end strategy get away from you. Remember that your actual goal is to sell the property to the highest bidder in order to make a decent return on your investment. A flipped house is most certainly not the end result you’re aiming for. So it’s important to focus significantly on the sales and marketing process, as well as how you’re going to go about pricing. You can’t keep the price so low that you’re unable to make a good profit, and neither can you keep it so high that you’re unable to find a good buyer within a reasonable amount of time. It’s actually a good idea to go to a real estate agent to sell the house instead of doing it all on your own. It’s important to not take too much time selling the place, as that will only serve to drive up your maintenance costs.
Short-term real estate investment can be a risky proposition, but that’s exactly why the rewards can be so satisfying. As long as you do your research well and have a solid strategy, and avoid making mistakes of the sort outlined in this article, you should be able to slowly but surely make a start in this industry.
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