Buying undervalued or damaged real estate, making the necessary repairs and then flipping it for a profit sounds super straight forward. Unfortunately it’s typically not. From cracked foundations to damaged roofs and missing pool equipment a variety of issues can arise after a house is purchased but by then you’re already all-in.
Here are the top 7 mistakes house flippers make so that you can avoid them and be successful on your next project.
- Ignoring the upgrades you really need to make. While some properties you flip will really only need truly cosmetic fixes – like tile, flooring paint and new countertops. Most homes that are out there for a really bare bones price need substantially more done to them than just surface work. And reselling to a typical buyer will mean passing a housing inspection and being up to code. This means you can’t just go skin deep- you need to repair all the issues the house has including any pest infestations, mold issues, electrical that’s outdated, Etc.
- Going over budget on the purchase price – leave room for surprises. The biggest mistake flippers make is underestimating the cost of the rehab work. So if you overpaid for the property to begin with- you could be in the hole much faster than anticipated.
- Skipping the inspection- if you have time to do one. For most house flippers the best deals are at auction with sight unseen properties. This is a total mixed bag of estate sales, foreclosures, damaged homes, Etc. If you have time before the auction- bring your contractor and do a drive-by of the house and see as much as you can. If it’s a more traditional sale like an REO, make sure you get into the property in advance and take a deep look around.
- Not researching the neighborhood well. Even if you find a diamond in the rough that’s ripe and ready to be flipped, if it’s in a declining neighborhood your property value even post-rehab will never meet your full expectations and you may have a hard time reselling it at all. Be sure to do your recon on other available homes in the neighborhood and check the comps on previous sales over the last year.
- Pre-paying contractors in full. No, no, no. Never pay a contractor in full at the start of a project. Setup an installment plan with them and pay when certain milestones of the demo and rebuild have met your expectations.
- Forgetting permits or just getting the wrong ones. Different states require different licenses and permits for construction and house flipping. Some states even require house flipping businesses to be licensed as general contractors. Know what your state requires so you don’t get in trouble. If you’re in a state that requires a higher license than you have – you might have to partner with a general contractor in order to keep working.
- Holding off on renting when the sale takes too long. You’ve spent weeks if not months of time and effort on the house with every intention of selling – but surprise, surprise the market conditions have shifted in the meantime and now it’s just sitting. Rent it. Rent it now to start at least paying your loan and credit card monthly payments and in 6 months relist it in a fresh market. This way you can continue making a small profit while the value of your new flip grows.
