When flipping houses for profit there are plenty of issues you may encounter. Some hassles are going to be unavoidable, regardless of how well you know the market or how much you have prepared yourself beforehand. However, you should check through this list of common mistakes to make sure you don’t lose money because of something you could easily have avoided.
Common Mistakes When Flipping Houses for Profit
1. Paying too much and/or not calculating all of the additional costs.
There may be commissions or real estate agent fees. There are certainly going to be holding costs (which many beginners forget to factor in). Above all, if you misjudge what the property is worth, you may end up overpaying for it. So how do you avoid spending more money than you can afford on a property? One of the first ways is to come up with a solid financial plan before committing to buy. This plan should include all of the extra expenditures you can expect to run into (see Determining Your Finances). You should also research the properties in the neighborhood, including the rate at which they are selling (and for what price). Get a good home inspection done and leave plenty of clauses in your offer so that you can bow out gracefully if you change your mind about buying during the negotiation process.
2. Over-remodeling / remodeling to suit your own tastes.
Remember, you plan on selling this home to someone else. Even if you absolutely love a room with a pink and teal color scheme, this is likely not going to appeal to every other buyer out there. Stick to bright neutral colors and keep your own personal tastes in check. Also, be sure that you don’t go overboard in the remodeling process. For instance, fancy internal organization schemes in your kitchen cabinets can be a great way to add value to your personal property. However, they are expensive and generally unnecessary for an investment home. Over-investing in making a home look nice can very quickly eat up your potential profits. Remember: this house isn’t for you, nor does it have to look as good as your own home. Keep your design clean and simple, and price appropriate for the neighborhood.
3. Cutting corners.
This is probably one of the first mistakes new investors make when flipping houses for profit. When you get into this game, you have to understand that potential buyers are going to be looking for certain things in a home. They likely plan on living there for several years, perhaps even to raise their family in. When you cut too many corners, particularly in visible ways- like flooring and moldings, for example- buyers will be turned off. Sometimes, something as simple as refitting a window or re-grouting old tile can make a big difference in how inviting potential buyers find your property. As mentioned before, don’t go overboard! Use your best judgment based on what the home will likely sell for, but always avoid cutting corners when you don’t really have to. This rule applies to when you hire contractors to do work for you as well. The last thing you need is the extra expense of bringing in a new contractor to repair the poor craftsmanship done by your first, and much cheaper, contractor.
4. Not doing your homework.
The real estate market can be a fickle industry. Each area may have it’s own high and low points in the year. Rates in a particular area may be on the rise. A certain neighborhood may be in need of development and offer properties for much lower prices that you can reasonably expect to see improve over time (assuming you are willing to hold or rent the property in the meantime). Finding the right investment property for your goals, and getting the most for your money, means doing plenty of research before and throughout the process. Ask questions. Get references when it comes to agents or contractors. Budget accordingly by leaving yourself a decent financial buffer. And, perhaps most importantly, make sure you give yourself the necessary time it takes to research and find the ‘right’ property, not just the ‘first’ or ‘best so far’ property.
5. Not getting everything in writing and keeping track of your records.
This one may not kill your profits right away, but if you aren’t organized and keeping everything in writing, it will sneak up and get you eventually. Face it, you simply can’t run a business without having at least the basic sense it takes to keep track of what you’re spending and where. You need well-written contracts that include all necessary information. For example, should a contractor fail to do a job properly, you want proof of the work they agreed to do, and at what price, in order to get your money back. You need your own personal way of keeping track of the market, and naturally, you need to know what you must claim and what you can write off when reporting to the IRS.
When flipping houses for profit, some of these mistakes are made even by experienced investors. The key to overcoming these problems and becoming a successful real estate investor is to form a plan, stick to it, and collect all of the information you can before rushing into a project. If you have any questions about getting started or think you might require the services of an agent for your first venture, feel free to contact us at anytime.