House flipping is a complex type of investment. There is a lot that needs to be considered and dealt with when flipping houses, and mistakes are easy to make. Before beginning your foray into flipping houses, here is a look at some of the common mistakes that are made by failed house flippers.
Mistake #1: Overpaying for properties.
Flipping houses is an investment that relies on how much value you can add to the property with renovations, so you can easily lose on that investment if you pay too much money for the property in the first place. Buyers who are new to the house flipping market often get caught up in the emotionality of their first purchase and lose money by not negotiating strongly for a lower price.
Mistake #2: Not having a backup plan.
House flipping investments can be tricky, so you will want a backdoor in case it becomes apparent that you will lose further money on the deal. An example of a good backup plan would be keeping in touch with another investor who will purchase the property wholesale. That way, if you do the math and decide you are losing money by sticking with the property you can get out while your losses are still small.
Mistake #3: Working alone.
Buying property of any kind is a big investment. While it can bring a good return, it is dangerous to take on the whole investment on your own. Instead, partner with friends or other investors who have more experience. A partnership will mean you are not shouldering all the cost on your own and, in case the investment turns bad, are not losing the entire amount.
Mistake #4: Not committing enough time.
House flipping is an investment that requires a lot of time. If you go into a house flip and underestimate the time you will need to perform the needed renovations then you will end up losing a lot of money from your investment. Keep in mind that you will most likely need to do some of the renovation work on your own in order to make a good profit.
Mistake #5: Failing to study the neighborhood.
Since house flipping is working within real estate, you need to be familiar with the neighborhoods in your area. The average prices of homes around your investment property will give you an idea of how much money you could expect to get from the flip. Additionally, some neighborhoods simply do not sell houses quickly. Do not shy away from studying your city to learn the real estate trends and work within those trends.
Mistake #6: Not getting the necessary permits.
Renovations or construction usually require some permits from your city. Even if your desired renovations do not need a building permit, you will want to ensure that you are still within the building codes for your city so you can avoid fines or extra renovations later on. Be familiar with your city’s codes and know what permits you will need.
Mistake #7: Ignoring renovation trends.
Certain renovations give a better return for the money put into construction. For example, updated kitchens are bringing in better returns than renovated bathrooms. Keep an eye on what renovations in your house flips will bring you a better profit and focus on those. Also make sure you understand what styles are more popular in real estate. Better styles will make your property easier to sell and receive your financial return.