Flipping Mistakes to Avoid

4 Mistakes to Avoid When Flipping Your First House

 

 

So, you’ve decided to flip your first house. That’s fantastic! Flipping houses can be a great way to make money in the real estate industry. But not all house flipping opportunities are successful, and some can even end up being financial disasters. So if you don’t want your house flip to be a flop, there are some mistakes you need to avoid making. Let’s talk about a few things to avoid when you’re flipping your first house.

1) Do Your Research

You need to have a plan. Don’t just jump into the first house flipping opportunity you get. You want to research the neighborhood thoroughly. You need to pay careful attention to things like crime rate and location. You also need to make sure that the market trends are suggesting property values are on the rise. You don’t want to take a loss because your plans don’t match up with the financial trends of the neighborhood.

2) Keep to Your Budget

The cost of flipping a house varies for every property. Even if you find a great deal on a house that’s located in a popular neighborhood, it may need a lot of repairs, which will make your profit margin much smaller. You want to set a budget and stick to it like glue.  Factor in the original price you pay for the house and all repair costs. Also don’t forget about listing costs, and of course closing costs when you do sell the property.  Keep in mind that you may end up holding onto the house for several months, both while you’re fixing up the property and while you are waiting on it to sell. Repair and upgrade essential items, but remember not to go overboard with expensive add-ons. There’s an unwritten rule in house flipping. It says that when you are purchasing a home to flip, you shouldn’t pay more than 70% of a home’s after-repair value. After repairs, you should be able to make a 15%-20% profit.

3) Be Careful When Financing Your Flip

Of course, the best route is to purchase the property with cash. That way you can avoid debt, and not have to worry about paying the interest on a loan until the house sells. However, that isn’t always an option for everyone. And remember that because house flipping can be risky, most banks aren’t interested in financing that type of mortgage. But if you must finance your property, there are a few options to consider.

  • Hard money loan – A hard money loan is a short-term loan (usually for a 6-12 month duration in most cases) that is issued by a private lender. These types of loans can be expensive, though, with high interest rates and require a downpayment, sometimes as much as 40%.
  • Home equity line of credit – This is a loan that uses the equity on your home as collateral. Which means that if you don’t make enough on the flipped property, you could put your own home in danger.

3) Not Everything is a DIY Project

While you may be able to complete some of the necessary work yourself, you probably aren’t going to be able to make every repair needed. Some repairs are complex and need to be completed by a licensed professional. Plus, you don’t want to put a lot of time and money into a repair that you aren’t confident in.

4) The Right Contractors are Key

Unless you know construction from top to bottom, you’ll need to hire contractors to help you with some of the work.  Don’t get stuck with an inexperienced contractor who either doesn’t know how to do the work, or ends up spending more than you budgeted for. You want to make sure that the contractors you hire are experienced and reliable, and that they have the proper licensing to do the job. Make sure to look at recent reviews online, because they can tell you a lot about prospective contractors. You can also ask for referrals from real estate professionals, or even other house flippers. Once you’ve chosen your contractors, discuss the expected cost of repairs and make sure you are on the same page.

The bottom line is mistakes do happen, especially for first-time house flippers who are figuring it out as they go. But learn as much as you can before you buy your first property. That way you’ll be as prepared as you possibly can be, and you’ll be able to avoid a lot of the most common mistakes when you’re ready to flip your first house.