Flip or Flop: The Top 5 Mistakes Investors Make When Rehabbing
House flipping dominates today’s real estate market. Experienced investors and newbies alike can make major moola from purchasing unwanted homes, rehabbing the properties, and then reselling them at a profit. While flipping homes can reward would-be real estate moguls, rehabbing comes with serious risks. To capitalize on this popular money-making venture, investors must avoid common mistakes and stick to the home flipping basics. Here are the top five biggest mistakes investors make when rehabbing a property and what you can do to ensure your flip isn’t a flop.
1. Forgetting About Financing
It’s no secret: house flipping requires financing. Like most lucrative real estate investments, rehabbing is an ambitiously expensive endeavor. On top of the home’s final sales price, flippers end up paying for quality contractors, materials, permits, marketing, property taxes and utilities, and other unexpected costs. Many inexperienced investors will budget the property’s acquisition cost without factoring in the average expenses of rehabbing. This is a major mistake!
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While having enough cash on hand to fully fund a flip is ideal, quite a few investors rely on low/ no-money-down financing. If you’re going this route, make sure to borrow from a legitimate vendor that offers reasonable interest rates. (Remember: the interest on loans is not always 100% tax deductible.) It’s vital to your flipping success to research all available financing options before committing to any mortgage type. Online mortgage comparison calculators will make identifying the best financing option simpler than it sounds.
2. Inadequate Time Management
Major renovations and home remodels don’t only require financing upfront; they also demand time. Investors typically spend months scouting and procuring the right property for a flip before construction even begins. And depending on the condition of the home, you can realistically spend months on property inspections, necessary updates, and relisting it on the market. Investors with poor time management skills often find themselves paying more to renovate than those with a detailed flipping timeline. If you want to avoid leaching potential profit gains, construct a practical calendar for your flip and stick with it.
3. Lack of Home Improvement Skills
Contrary to popular belief, being able to work on your own flip saves you time – the true currency of all real estate investments. While skilled builders and home improvement professionals (think carpenters, plumbers, and electricians – oh my!) have the knowledge and experience to fix a home with ease, they cost money and work on their own schedule. Yes, you can shop around to secure competitive rates, but hiring professionals still costs more than if you worked on the property yourself. Even taking on menial tasks will expedite the house flipping process.
4. Market Ignorance
If you want to succeed with house flipping, you MUST understand the real estate market: what properties are selling, where they’re ideally located, and how much they’re worth after making extensive repairs. Being ignorant of current real estate conditions is a stupidly common mistake that creates more failure than success.
Someone once said knowledge is success. This is especially true when investing. Veteran flippers can determine the right deal for a property, necessary renovations needed to make a profit, and how to resell while highlighting the home’s best features.
5. Not Enough Patience
Long term success in rehabbing demands patience. While professionals take their time to find the perfect dilapidated home, novices typically purchase the first property moderately undervalued. This isn’t a great practice, especially if you’re without investor knowledge only experience can produce. Don’t hire the first contractor that submits a bid or a realtor to resell the home. Avoid prematurely diagnosing property issues without a complete home inspection first. Instead, pay for a home inspection, shop around for trusted contractors to work with again, and list your flip as a For Sale By Owner to minimize selling costs and maximize gains.