by Jacques Poujade
House flippers purchase properties that the majority of buyers do not want to restore, then upgrade these to create demand from buyers. Needless to say, there are many potential pitfalls here that novice house flippers could fall into. As someone who has helped house buyers for decades, I will share seven common mistakes in house flipping that you should avoid if you want to succeed:
1) A Lack of Understanding
The key thing for new investors to do is improve their knowledge of the real estate market. The phrase ‘forewarned is forearmed‘ is particularly pertinent to this industry. It is a simple matter to conduct some research, by looking online or reading some books or magazine articles.
2) Purchasing Without Budgeting
Calculate your approximate total costs for renovations and repairs, with labor and equipment included. Estimate the ARV (After Repair Value) that the property will be sold for, after your renovations are finished. Multiply 0.7 by your ARV, then deduct your total renovation expenses to determine your maximum spend for the property.
3) Failing to Insure the House
Home insurance is not only for residential buyers. It will safeguard your property flip against floods, fire or stolen materials. Of course, this will erode your margins slightly. However, this is better than purchasing an investment home, then losing it to some type of unforeseen event.
4) Entering a Business Partnership With Strangers
Without a strong support network around you, or healthy relationships with the people in your team, your efforts could be thwarted by other people’s incompetence. Your team is not only restricted to other investors. It can also include realtors, appraisers and bankers — to name a few. Do not go into business with anyone you can not rely on.
5) Becoming Impatient
Experienced investors wait patiently for good properties to present themselves. New investors often purchase the first property they set their eyes on. Then, they enlist the services of dubious contractors to complete work they can not complete themselves. Experienced investors use networks of dependable, retained contractors, or complete the work themselves.
6) Not Getting the Property Inspected
A reputable property inspector can be invaluable, if he uncovers hidden problems with the home like dangerous wiring, a broken foundation or mold. Before hiring an inspector, you will need to make an offer on the property. Should the inspection reveal costly defects, you can request a lower price, ask the seller to repair them, or walk away from the deal.
7) Not Considering the Aftermath
Finally, to guarantee the success of your property flipping efforts, you should always have an exit plan in place. This largely depends on the price you choose to list the property for. Speak to your real estate agent about this, so you can get a quick sale and reduce the time period where carrying costs will accumulate.