House flipping is becoming a significant trend in the world of real estate development. Savvy investors, young and old are seeking opportunities to take rundown homes and flip them for a profit. Succeeding in this endeavor is not as easy as it looks on reality television. There are many mistakes that those without much experience can make. House flipping is one activity that requires the right amount of know-how and guidance to avoid the risk of financial trouble with no way out. Take a look at five the most common mistakes rookie house flippers make.
Most people think that house flipping is something you can do on the fly. That line of thinking can get you in a lot of trouble out the gate. Simply winging it when flipping a home will lead to failure. While there is flexibility to get creative with problems that arise, you still need to craft a strategic course of action. This plan will include, the types of renovations needed, the budget, and the schedule. Poor planning can cause more time for repairs which can cost you money.
Neglecting the 70% Rule
The 70% Rule, if appropriately used, can make you a lot of money. However, therein lies the problem. This basic rule of thumb states that you should not spend more than 70% of the ARV, or ”after repair value” of the property. Exceeding this amount can lead to making no profit from the house. Many beginners make this mistake as they allow emotion take over and bend to the seller’s will. Proper planning will come into play in this situation. By doing the math in advance to determine 70% of the ARV, you can set a “maximum allowable offer,” that you cannot surpass.
Another common mistake made by beginners. The last thing you want is to run out of money right before your project is set to end, forcing you to shut down the whole operation. For this reason, you will want to create a friendly budget that will cover all the needed renovations. Seek out estimates from a professional contractor before you get things started. You also want to leave room in the budget for any worst case scenarios. It is possible for something unpredictable to happen, so you want to be prepared to cover any costs that come with it. Hopefully, everything will go smoothly, and the extra padding can be additional profit.
Many people sometimes look at house flipping as taking an old home, remodeling it and selling it for a profit. This idea sounds very simple on paper. However, the reality is, it’s not that easy. If you aren’t a professional, it may be useful for you to hire contractors to perform most of the heavy labor for you. You will also want to seek the help of an interior decorator who can help with the design of things like the bathroom and kitchen. Building a team of professionals that can guide you along the way will set you up for success and avoid going over your budget.
Ignoring External Factors
There are many external factors that you should consider when house flipping. Turning a blind eye to them can shut you down completely. You want to be aware of the neighborhood where you are looking to sell. It will be challenging to sell a home in an undesirable area with unpleasant houses surrounding the one you are selling. You also want to keep in mind of any city and state ordinances. Failing to follow these to the letter could lead to a significant fee. Therefore, before getting started, you may want to look into the city building laws and obtain the necessary permits you need.