Popular TV shows like “Flip or Flop” and “Home Town” make flipping houses look easy. In the space of an episode, the team transforms a tired old property into a home worth much more than their investment. Of course, these reality shows don’t quite reflect the reality of house flipping. Fixing and flipping a property can be a terrific way to invest your money, but only if you avoid costly mistakes.
Don’t Pay Too Much For the Property
Paying too much for the property is the first error that many new property flippers make. It sets you up for failure because you’ll never make a good return on your investment, no matter how much work you put in. Consider the physical property and location to determine whether it’s a good buy.
You can reduce the risk of paying too much by carefully researching the market you’re buying into so you understand fair values and the demand for local properties. Running your comps or using a trusted professional can also help assess a home’s value. Make decisions with your head rather than your heart. You might really love a property, but if it’s not an intelligent investment, it’s not the one for you.
Make a Realistic Budget
Having a realistic idea of your costs is essential throughout any house-flipping project. Underestimating how much you’ll need to spend to get a property ready for sale may cause you to purchase a money pit instead of an excellent investment. Excess spending during your project can have a dramatic impact on your profit. In some cases, you may even need to suspend your project to generate the funds you need.
Getting a professional property inspection can help you create an accurate budget. Do your research to make sure your estimates for materials and any labor you’ll outsource are precise. No expense is too small. Itemizing things like doorknobs and toilet seats will make your budget more realistic. Remember to account for holding costs, taxes, and other fees beyond the work you’ll do too. Seasoned flippers know to expect the unexpected, so make sure you build a buffer into your budget. Between 10% and 15% of your total budget should cover your unpredictable expenses.
Accept That You Can’t Do It All
After watching their favorite home and garden shows on HGTV, many people think they can flip a property themselves. However, they don’t realize that the hosts of those reality shows usually have a team of professionals working with them. Unless you’re very experienced at home renovations, you probably can’t flip a house alone.
Don’t balk at the cost of licensed contractors. These professionals can work more efficiently and effectively than you can. By all means, save money by tackling simple tasks such as repainting walls and replacing grimy grout. But when it comes to more complex jobs such as laying floorboards and plastering, trust the professionals.
Hire the Right Contractors
Your contractors can determine the success or failure of your property flip, so it’s vital to get the right ones. Researching contractors and paying specific attention to any photos of their past projects and testimonials can help you find quality contractors. Try to get three quotes on all jobs. When they’re assessing the project, ask plenty of questions to gauge their professionalism and experience. Let your assessment guide your decision, not the price.
A down payment that covers materials is typical, but avoid paying too much upfront. Contractors are likely to do a better job if they’re still awaiting payment. You’ll also have more leverage if you want a contractor to correct mistakes. If a contractor doesn’t meet your standards, you’re within your rights to fire them and look for a better fit. Keep the details of your best contractors for future flipping projects.
Consider the Neighborhood
Too many property flippers get so focused on their flip that they forget how it might fit in with the community. The best flips feel like they belong in their neighborhood. Don’t get carried away with a luxury refit if your property is in a working-class community. If the homes in your area are traditional, you’re better off sticking to the tried and true than going ultra-modern with your property’s aesthetics. The buyers attracted to the area won’t see the value in your property, and you’ll reduce your profit margin.
Carefully researching your property’s local area can help you get your flip right. Monitor real estate prices and try to bring your property up to a similar level. You might like to attend local open houses so you can assess the styling and features of other properties in the area. You can then incorporate some of the ideas you like into your flip.
Create Clear Exit Strategies
A clear exit strategy helps you pay off your loan and generate a return on your investment. It might seem like putting the cart before the horse, but savvy investors think about their exit strategies before they buy. The best investors usually have several potential exit strategies, allowing them to pivot as needed to maximize their profits. You may risk losing money on the deal without a clear exit strategy.
Exit strategies worth considering include selling the property after fixing it up, renting it out, or wholesaling it to another investor. The amount of time you want to hold on to the property, your preferred return on investment, and how quickly you want to see returns may also influence your choice of an exit strategy. Just make sure you know your preferred exit strategy so you can work towards achieving your goal. Setting benchmarks for your flipping project can help you decide when the time is right to enact an exit strategy.
If you’re considering flipping houses, we’d love to help you. At Titan Funding, we can help you secure the funding you need for your fix-and-flip venture and help you access amazing real estate opportunities. Contact us to learn more about how we can help you achieve your investment goals.
Image by Milivoj Kuhar is licensed with Unsplash License