Investing in real estate with the goal to flip it for profit can be an exciting and lucrative business. It involves a lot of time, money and skill in the beginning, but many people have found flipping houses to be a rewarding experience. However, making mistakes in the house flipping business can be extremely costly, and can have a detrimental effect on your personal and professional life. In order to avoid major setbacks in your house-flipping journey, make sure you aren’t making these 7 common mistakes of first-time flippers.
1. Forgetting the permits
Filing for building permits when flipping houses can seem like another tedious and unnecessary step, especially if you feel like you aren’t making major changes to the structure of the home. Skipping this part, however, could land you in a lot of legal trouble if the new homeowners find issues in the home during the sale. If you are working on plumbing, gas, or electrical in any way during your flip (which you will be) save yourself major headaches down the line and get the proper permits from the city.
2. Bypassing a real estate agent
House flipping is the ultimate DIY project, and people who take a home that needs some love and turn it into a real estate masterpiece that everyone loves, enjoy the feeling of pride and accomplishment that comes with flipping a house. However, having a team of professionals behind you is vital in your first house flip, especially a real estate agent. An agent will be able to guide you in the right direction so can quickly and easily market and sell the home after you’ve worked your magic
3. Starting too many projects at once
A common rookie house flipping mistake is getting overzealous in your projects and starting too many things at once. Grouting a bathroom floor may get tedious and exhausting after a while, and the temptation to walk away and start on something more exciting like a kitchen remodel may be more than you can handle, but stay strong and finish one thing at a time, or you’ll end up with a house full of half done jobs that will feel overwhelming and defeating.
4. Relying on the Internet too much
A major mistake many house flippers make is assuming the After Repair Value (ARV) that they find on the internet is realistic, and find out afterward that the house is valued at much less than they expected. The internet is a very useful tool and can provide countless tutorials, articles, and videos that are helpful to house flippers, but when it comes to financing and market projections, a real estate agent is a much safer source than Google. House flipping website like FlippingHouses101.net and other DIY websites are great resources for education in the house flipping business, but an agent should always be part of your real estate investment team.
5. Disregarding the 70% rule
House flippers can keep themselves safe financially by remembering the 70% rule: Take the ARV (that you get from an agent, not the internet) and multiply it by 0.7. The number that you get is the very most you should pay for the property. This allows you to still likely profit from the flip after all of the expenses, financing and carrying costs.
6. Ignoring the neighbors
First-time flippers full of optimism and hope may fall into the “ugly house” trap; buying the ugliest, most run down property is a less than desirable neighborhood because it’s cheap and because they’re certain they can turn it into something wonderful. Resist the temptation to save a little money by investing in a shady neighborhood. Your final product may look great, but buyers may change their mind before they even get there if the neighborhood scares them away. The location of the property is just as important as the upgrades you do to it.
7. Tearing down instead of refurbishing
When it comes to house flipping, sometimes the best way to fix an issue is to take it out altogether and start new. However, things like cabinets can sometimes just use a face-lift to bring them back to life and can save you time and money vs tearing it all out and starting from scratch.
Once you get the hang of it, flipping houses can be an exciting, profitable and fun adventure. However, things don’t always go according to plan, which is why being educated and flexible are so important as you are getting started. If you can avoid these seven common mistakes, you’ll be on your way to becoming a certified, DIY, house-flipping pro.