House flipping is a continually growing trend, fueled by HGTV shows like Flip or Flop and Fixer Upper. Savvy investors who like to work with their hands are looking for opportunities to flip rundown houses and turn a profit. However, turning a profit on a flipped home isn’t nearly as easy as reality stars make it look. There are countless mistakes that amateur flippers make. Here are a few you should avoid.
The entire purpose of your house flipping endeavors is to turn a good profit. However, that profit diminishes when you overpay for a property. It’s easy to make emotional decisions during such a large purchase and fail to negotiate properly, but if you want to turn a real profit, you’ll do your homework.
Pay attention to current home sales in that neighborhood, and compare what you’re getting to those prices. Chances are, your fixer-upper home will be rundown, so it might be a good idea to have a contractor look it over and give an estimate on the repairs. That way, you can gauge an appropriate asking price and avoid getting ripped off.
Another common money issue is investing too much of your personal finances into the property as a whole. Even if you got the property at a great price, it’s easy to keep piling money into the project until your life savings are gone. However, it’s not worth the risk.
Instead of investing gobs of your own money into the property, seek out loans or investors to back your venture. That way, if something falls through, you’ll have a better chance of getting back on your feet.
Once you’ve found financial backing, make sure there’s enough to last the life of the project. You’ll want a healthy budget to cover the planned renovations, plus a little leftover for contingencies. Nothing is worse than running out of cash two weeks before the end of your project, and shutting down the entire thing.
4. Skipping Important Upgrades
With all this talk about being savvy with your money, it’s tempting to cut corners and go with the cheapest options. However, there are some upgrades you can’t afford to skip. The top amenities on buyers’ lists are generally the kitchen, bathroom, and master suite. If possible, pull out all the stops on these rooms in order to deliver a “wow” factor that will have buyers crawling to your door.
5. Remaining Ignorant About the Neighborhood
Aside from the fact that gaining insights about real estate in your neighborhood can help you determine an accurate asking price, it can also tell you whether or not home buyers will find it a desirable neighborhood. Flipping houses surrounded by ugly houses and yards will make it very difficult to sell the home.
6. Ignoring Permits and City Ordinances
Every state and city has their own ordinances regarding construction. If you don’t follow these to a T, they could fine you a hefty fee or even completely shut you down. It’s always best to begin a project by brushing up on city building laws, and gaining the correct permits from the very beginning.
7. Going It Alone
There’s simply too much labor and stress involved with doing a house flip for you to do it on your own. Successful flips are operated with a full team in tow, particularly if you’re new at it. Use the several months before purchasing your first home to network and find trustworthy contractors, real estate attorneys, agents, lenders, and accountants to help you get the job done.
8. Underestimating the Time Commitment
Flipping houses takes more time and commitment than many people realize. It may take several months to find the right property and build up your team before getting started. Then there’s the time for renovations. Some flips will take six weeks, while others may drag on for several months. All in all, it will take up much of your personal time, and if you don’t have it to spare, better wait until you’re less busy to do the flip.
9. Leaving Out a Backup Plan
It’s ideal to flip a house and then sell it, but it’s important to be realistic about what may actually happen. You may have a harder time selling it than you think, and if that was the only element of your plan, you’ll be in trouble. Renting the property to pay the mortgage until you’re able to sell the home is a great option. You might also wholesale to another investor if you just want some of your cash back. Either way, an exit strategy is important in case the flip goes sour.
10. Designing According to Your Personality
Remember that you won’t be the one living in this home. You might love the red walls in the living room and custom, loudly patterned wallpaper in the kitchen, but your prospective homebuyers may not. Give the home enough of a neutral design that the buyers can imagine themselves living there with their own decorations.
11. Failing to Stage the Property
Holding an open house with an empty house is a particularly common mistake. Amateur house sellers may not realize that staged homes, which cost around $2,500 to set up, sell faster and for more money, meaning you’ll get that money right back and more.
12. Planning Poorly
There’s no such thing as winging it when you’re flipping a home. It’s true that you’ll have to get creative with solving problems as they come, but for the most part, you’ll need to map out a clear plan, including the types of renovations, budget, and schedule. Not having a plan will take more time, and every week your renovation falls behind, the more money you lose.
13. Quitting Your Day Job
Some people make a career out of house flipping, but it usually doesn’t happen all at once. They get really good at what they do first, and until that happens, they continue working their day job. For most people, flipping houses works best as a side job rather than a full career.
14. Rushing the Home Sale
Finally, remember when you’re going to sell the home that patience is key. Take your time during negotiations, and whatever you do, don’t let the buyers know that you’re on a tight schedule. Looking too desperate will get you low-ball offers, and you could sell the home for much less than it’s worth.
15. Not Selling Your Home with Green Residential
If you’re just starting out as a home flipper, you’ll want an expert team at your side. At Green Residential, we can take care of much of the home selling process for you. We’ll facilitate professional quality photos, polished listings, scheduling showings, and final contract negotiations. The best part is, we offer a flat rate fee, which means you can keep all the money you get for selling the home without giving a percentage to the agent. For more information about the home selling services we offer, contact us today!