Flipping houses, when done correctly, can be a great way to earn a sizeable income in a relatively short amount of time. However, there is a lot that can wrong. Even professional house-flippers encounter the occasional flop. There are things house flippers can do, though, that will greatly increase their odds of creating a flop.
These are some of the many mistakes many people make when trying to flip houses – mistakes that can be costly and you might want to avoid. Remember them well and try to avoid these mistakes if you decide to try your hand at flipping houses now or in the future.
- Paying Too Much for the Home
The entire premise of a successful house flip is that you buy low, make structural and cosmetic improvements, then sell high. If you pay too much for the home, in its current condition, that cuts into the budget you have to work with for improvements, so that you can turn an effective profit.
To make real money on a flip, you must be able to purchase the home well below the normal market price so you have room in your budget to make the necessary improvements and sell for a profit.
- Overlooking the Importance of a Thorough Home Inspection
Before you buy a property, you need to have a thorough inspection, by a professional, of the property. While this won’t reveal every potential problem you’ll come across in the course of a flip, it can clue you in about potential problems, such as possible water damage, the potential need for a new roof, and signs of structural damage that will need to be addressed during your renovations.
The information revealed in the inspection may even cause you to adjust your initial offer on the home. Even if it doesn’t, it can help you immensely in planning your renovation budget.
- Having No Cohesive Plan for the Home
Before you make an offer on a home you intend to flip you need to have a cohesive plan for the specific changes you want to make in the home and how those changes should affect the selling price of the home. The more aggressive the changes, in general, the costlier they will be. You must consider this when making an offer on the home.
Why is a plan so important?
If you’re just winging it as you go, you’re not going to be able to create or stick to any sort of sensible budget. Having a plan for the entire home also helps you to determine the priority of certain tasks, the order of importance for specific repairs and renovations, and a measurable timeline so that you can hold yourself and the people you hire to work on the home accountable and keep everyone on target as you go.
Without a cohesive plan, house flips tend to fall apart or become massive money pits that never turn a profit.
- Failing to Set a Budget for the Project
Budgets are essential for keeping your project affordable in the long-term. Not only do you need to have a budget for the project, but you need to hold yourself accountable to that budget by adding up the spending day by day as you go.
It is shockingly easy to go over budget when flipping a home – especially if you’re not staying on top of your total spending as the project commences. If you don’t have the time to do it yourself, consider hiring or appointing someone to tally and track expenses daily to make sure you’re on target to meet your budget goals and still have a little wiggle room for the inevitable surprises that arise during a house flip project.
Don’t forget about things that nibble away at your profits along the way, such as interest payments, insurance costs, and capital gains taxes at the end of the project. You need to plan your budget with all these things in mind and stick to your original budget to the best of your abilities.
- Losing Sight of Your Original Goals
The goal of flipping a house is simple. Profit. Your goal is to return a sizeable profit for a minimal investment of time, energy, and expense. It’s a worthy goal. It’s also one that requires a great deal of commitment to see it through.
Why is it so difficult?
Often people forget that the original goal is to earn as much money from the home as possible, within the confines of size, location, and housing market. It is simple to create a stunning home that is simply not appropriate for the market. You have to factor all these things into your planning, budgeting, and goal-setting. Ask yourself these questions often throughout the house flipping process.
- What will the local market bear?
- Is the vision you have for the home appropriate for the neighborhood?
- Is the home the right one for the neighborhood or the expected market?
- Do design adjustments you make along the way work with your original plans and goals for the home? In other words, how much will these changes bite into your budget?
- Will cost adjustments result in greater profits for you or is the property already at the maximum for the local market?
- Will you turn a sizable profit without making changes to your original goals?
The bottom line is that every dollar you spend when flipping a home needs to be dedicated to improving your ROI. If it isn’t going to help you sell the home faster, get a higher price, or benefit the flip in some other way, it is likely an unnecessary expense.
- Misunderstanding the Market
It is always wise to plan flips for areas you are intimately familiar with. This means that you know and understand the types of people who want to live in the area, how much the market can and will pay for properties, and what people are looking for when buying homes in certain areas. The better you understand the market, the wiser choices you can make when it comes to the following:
- Size of the homes you flip.
- Number of bedrooms in the homes you flip.
- Outdoor living in the homes.
- Luxury touches and expected finishes in the homes you flip.
- Risks and benefits for flipping homes in certain areas.
- Property values in the area you’re considering.
- How much you’re willing to pay for properties to flip in the area.
- Factors that indicate a good deal in the area.
The better you know the place and the people where you are flipping a home, the better profit you stand to make on the flip by avoiding luxury touches the neighborhood can’t afford and including things that are necessary to attract buyers in the area.
- Failing to Secure Necessary Permits
Permits are facts of life when flipping homes. You’ll need different permits for various aspects of the job. Failing to get these permits not only means you may have to backtrack on work you’ve done (which can be expensive); it also means you have to stop work until you have the appropriate permits in hand to continue. These delays cost time and money and could force you to make additional payments on the note while waiting for approvals. It is always best to get them first rather than to be caught without them.
- Overestimating Your Abilities
Not only do some states require professional contractors to sign off on certain jobs, but some jobs are dangerous to do if you aren’t absolutely certain of what you’re doing. Things like electrical work, plumbing, and roofing, for instance, often require specialized skills. If you don’t have them, it is best to hire someone who does to perform these important tasks.
Failing to do so could result in even greater costs for you plus the need to bring in professionals on the other side of the project to correct work you did wrong. The other benefit of bringing in professionals is speed. They are more experienced at most tasks and can complete them much faster, sparing you unnecessary time delays and risking additional interest payments along the way.
The other side of that is that you may overestimate your ability to spend an appropriate amount of time every day working on flipping the home. Flipping a house is a commitment. It requires long hours of work. Many people make that their full-time jobs and professional house flippers may have multiple projects going simultaneously to maximize connections with contractors and the use of their time and attention. It is a good idea to understand how much time you have to invest as well.
- Insufficient Financing
From the start, a successful flip requires cash flow to keep going. Many people only think in terms of the money they need to purchase the home. But you need a significant amount more than that. Some flips require more extensive renovations and repairs than others. That means they require more money than others as well.
You need to make sure you have the funds to handle the costs of purchasing the home, making the renovations, and a contingency fund to handle unexpected repairs you discover along the way. Otherwise, your flip could be dead in the water due to insufficient funds.
- Ignoring Curb Appeal
Many flippers, especially first-time flippers, underestimate the importance of curb appeal for bringing potential buyers into the home. If you don’t have the wow factor in place when people drive by, more often than not, they will keep driving right on by.
In other words, it doesn’t matter how great the inside looks if you can’t tempt people to take that look. Curb appeal is what draws people in so they’ll stop and give the home a more thorough inspection.
Curb appeal includes things like fresh paint, attractive landscaping, outdoor lighting, power-washed sidewalks and drives, and little touches of home, such as rocking chairs on the porch or a tire swing hanging on a low-hanging tree branch. These are the types of things that make people think about the house in terms of a potential home.
- Forgetting the Little Things
It’s easy to hyper-focus on the big changes you’ve made to the home while forgetting little things like making sure the outlet covers and light switch cover plates match the room and each other or making sure all the caulking is finished and dried before people show up to tour the home or making sure the drawers open properly and that there are no squeaks when opening cabinets and doors. These little things may not add to the wow factor of the home, but the absence of problems helps to overcome any objections potential buyers might be able to come up with.
- Staging Poorly or Not at All
Failing to stage a home you’ve flipped is a huge mistake that may prove costly. When people walk into a home as potential buyers, they want to be able to see a family living in the home. More importantly, they want to be able to consider their family living in the home. This means they want to see beds, furniture, and little knick-knacks that make a home look lived in and livable. Plus, staged homes sell faster and for more money.
Hiring professional stagers is the only way to go. These pros understand the psychology behind the staging process and how to show the home you’ve created in its best possible light. This includes adding touches that camouflage potential flaws or cosmetic imperfections while showcasing the hard work you’ve done to flip the home.
Avoiding these mistakes doesn’t guarantee a successful house flipping experience, but it greatly improves the odds. Make sure you keep them in mind when planning your next flip to get more mileage from your money and a greater return on your investment. Good luck!