Are you looking to place your foothold in the real estate business, or are you a seasoned rehabber with multiple flips under your belt? Explore these four common house-flipping mistakes to avoid so you can turn a profit with your renovation.
Underestimating the Project
Due to the countless house flipping shows on cable television, people have a warped, idealistic idea of what goes into home rehab. When you see a professional flip a house in an hour, you can forget about the months of hard work and planning that go into a successful flip. The reality of it starts with purchasing a home—a daunting task unto itself. Then, you need to renovate and sell all within a tight budget. When you go into the process, it’s important to understand it’ll be a long, expensive journey.
Spending Too Much Time on the Flip
The trick to flipping isn’t maximizing your selling price and completing a full renovation. The trick is selling as fast as you can while turning a profit. The longer you own a home, the more your cost as a homeowner increases. With each passing month, you have to pay a mortgage, property taxes, utility bills, and that’s not even including how much gets spent on the renovation.
That’s why—rather than adding custom crown molding to every room—it can often be in your best interest to fix the house’s bones, paint the walls, and sell the home quickly. Also, you don’t get paid until the end, so cash will keep burning with no reinforcements until after the sale.
Even if you’re an expert contractor, there are some parts of a home flip you simply can’t do yourself. Every renovator will need a trusted team of professionals to whom they can delegate specialized tasks. You’ll need a real estate attorney for purchasing and selling. You’ll need an inspector, a plumber, an electrician, carpenters, flooring experts, landscapers—The list goes on and on. Even if you can do some of these tasks yourself, it helps to have a trusted team at your disposal for difficult situations where a professional would be best suited for the job.
Miscalculating the Costs
Because you don’t get paid until the end, that means you must follow and maintain a budget over multiple months in order to remain in the black. When you sell, you need to sell it for more than the cost of purchase, renovation, and holding costs combined. Your margins will be razor-thin, so it’s essential to build a researched budget with quotes from contractors before beginning. If you’re worried about renovation costs, a hard money flip loan will allow you to borrow based on the ARV (after repair value) rather than what a home is currently worth. Also, make sure to include a cushion in your budget because nearly every home rehab will have problems that pop up and bring unexcepted costs.
Now that you’ve explored these four common house-flipping mistakes to avoid, you know the pitfalls to steer clear of on your way to a successful flip. If you’re an aspiring home renovator looking for a trusted loan provider that understands the challenges of the real estate market, look to Hard Money Partner for your solution.