Flipping Real Estate is a popular way to make money. If you’re considering joining those using Real Estate to put more cash in their wallets, study the process and be prepared. Mistakes can be costly. Keep more of your money by avoiding these typical flipper mistakes.
Mistake #1: Paying too much for property. The greater the difference between your purchase price and market value, the greater your window for profit. The point of flipping property is to realize a profit.
Mistake #2: Overlooking fees when considering costs. Purchasing the property to flip is not the only cost involved. Don’t forget realtor fees, property taxes, etc. when tallying cost.
Mistake #3: Setting selling price too high. Don’t let greed make you stupid. Stay competitive. If you can afford to under price compared to other available properties, you increase selling potential and decrease potential selling time. The quicker you flip, the more time and money you’ve saved. (There are exceptions to the time rule but not the price.)
Mistake #4: Forgetting that time is money. Be organized and stay organized. Keep necessary information where you can find it easily: Lists of trusted contractors, property information, vital telephone numbers. Time spent chasing information is time lost and money wasted. If you maintain a certain set of criteria for purchased flip property, you’re likely to require the same services for future flip properties.
Mistake #5: Tackling repairs and upgrades you aren’t qualified to do. Attempting to do repairs you’ve never done before or don’t have the necessary tools to do is not wise. Experienced professionals can usually do a quality job in less time. If you try to do repairs and fail, you’ll spend more in fixing the errors than starting from scratch would have cost. Know your skills and use them when you can. Consider your skills and abilities when looking at prospective flip property.
Mistake #6: Fixing the flip property to suit yourself instead of prospective buyers. Check with home builders, contractors, painters, local supply houses, and even the county assessor, to see what colors and designs are selling. Just because you love blue paint and colonial trim doesn’t mean anyone else does. Focus on the prospective buyer’s taste, not your own.
Mistake #7: Failure to create a backup or ‘Oh No’ plan. Repairs and costs tend to total more than anticipated. If you are forced to add totally unexpected costs (replacing a septic, fixing a foundation, etc.) your profit margin can shrink or even disappear. To avoid this, carefully and thoroughly inspect properties and build a certain percentage into your budget just to cover unexpected costs. While wise real estate flippers avoid property with obvious structural or other expensive damage, some defects aren’t immediately apparent.
Mistake #8: Ignorance of the market. Real estate tends to cycle, with property areas having their own particular busy and slow seasons or times. Find out what the cycle is for the area in which your prospective property is located. Successful flippers keep the time between purchase and re-sell as short as possible. You don’t want to purchase a property and find yourself needing to sell it during the slow part of the cycle.
Mistake #10: Hiring unreliable support teams. Choosing a rock bottom estimate provider may result in a rock bottom return on your investment. Make sure you’re comparing the same services when looking at estimates. Get references from contractors and check those references. Speak with employees at local supply companies. What contractors are customers complaining about? Are any contractors known for taking too long to complete jobs or for providing shoddy work? Ask neighbors in the property area. Who do they recommend? Who do they suggest avoiding?
Mistake #11: Failure to get it in writing. Successful flippers know the value of a well-written contract. Whether the contract covers the sale and purchase of the property or repairs and upgrades, all of the necessary information is there. Payment amount, payment method, start date, completion date, materials, labor and expected result. The purchase contract will include an ‘out’ clause in case a buyer cannot be found and the right to assign the property.
Mistake #12: Failure to keep good records. Keep a log of time, activities, materials, fees and all other costs related to the flip property. Keep separate folders for separate properties. Always close out flipped properties by tallying all expenses and income. Watch for trends and unexplained changes in cost columns.
Flipping property can be a lucrative part-time or full-time business. Careful inspection of potential flip property and attention to detail before, during and after the flip process will increase your chance of a successful (and profitable) flip outcome.