Flipping property is rising in popularity as a form of real estate investing. It is a great way to get started for investors who are ‘itching’ to get their hands a little dirty. There are many rewards make such transactions attractive. However, the sweat equity involved can also be daunting when you don’t have the skills to match your ambitions. It could even become dangerous in some situations.
If you want to minimize your risks while maximizing your potential for success when flipping properties, here are seven of the most common mistakes to avoid.
Don’t skip on inspections
Home inspections can be expensive and time-consuming, two things real estate investors tend to shy away from. However, waving the property inspection, septic inspections, etc. could cost you big in the long run.
First, if you do not have any idea about the scope of work, you cannot make an educated estimate of the costs involved in rehabbing the property. Besides, it is your last opportunity to review your offer or walk away from the deal at minimal cost for you should anything come up. Except in some rare cases–like if the house is a complete teardown–always budget for the standard inspections in a house flip.
Don’t underestimate your budget
As anyone involved with a house repair project can tell you, construction will always cost you more than you plan for. New issues get discovered as the project is well underway, delays arise, etc. And yet, underestimating the cost of a house flip is the most common mistake even among seasoned professionals.
Managing your money during a house flip will make the difference between a profit and a loss. Not only will you need to have an accurate estimate of the project’s cost, but it is also wise to include some wiggle room in your budget to finance the unexpected.
Be realistic about your abilities.
Popular TV shows often give viewers the wrong idea of what a house flip looks like. Because you’ve seen something done on television or YouTube doesn’t mean that you can do it on your own. DIY may sound cost-effective and fun. However, it usually costs more to have someone repair your mistakes than to hire a professional from the start.
This doesn’t mean that you shy away from learning how to do some of the work yourself. However, it takes time, experience, and professional training. As a rule of thumb, plumbing, electrical, and structural work are generally best left to the professionals unless you have specific experience or training in these fields.
Hold yourself accountable during a house flip
Your timetable and your budget should always be at the forefront of your mind during a house flip. It’s easy to check other people’s mistakes. However, most people find it difficult to hold themselves accountable for time and money when they are at the head of the project.
Unfortunately, failing to do so can be a very costly blunder. Establish some clear milestones and regularly check on your budget to make sure you are on the right track, even if nobody else is checking on your work.
Proper accounting is key to a successful house flip
Accounting is tedious. However, do not forget to keep up with receipts, bills, etc. and reconcile the facts and figures daily.
It is far too simple for impromptu trips to the local home improvement center to escape scrutiny. Add a couple of these trips per day, and you could easily find yourself over budget with no paper trail to explain the transactions.
You could also find that some tools will not work or be needed for the project. Those items cannot typically be returned without the original receipts. Keep all related paperwork in the same place and organize it as soon as possible to avoid a major headache at the end of the project.
Stay on top of the leadership
There is such thing as too many cooks in the kitchen, especially when it comes to projects as complicated as house flips. If you are running the project, run the project and avoid having 10 people giving contradictory orders. It will only slow down the process.
Schedule meetings regularly with other actors (general contractors, investors, real estate professionals, etc.) to discuss progress and any adjustments or changes that may need to be made.
Have a solid game plan
This step is the difference for many would-be house flippers between success and failure.
Plan out every step of the project in an order that makes sense. You do not want to paint the ceilings or walls after you’ve installed new floors. Nor do you want to rip out walls to replace plumbing after you’ve painted them. Plan things out in the proper order and allow a day or two between subsequent projects in case extra time is needed. The last thing you want to do is pay a group of contractors to stand around, waiting for the paint to dry so they can begin the next step in the process.
Any investment comes with its challenges. Real estate can be an excellent asset, but it should still be approached carefully. House flips come with their risk factors that must be accounted for. However, by following this tried-and-true advice, you can significantly lower those risks and allow investors to have high expectations when all is said and done.
What is the most common mistake you have encountered during a house flip?