Investors have been using house flipping for profit as an investment strategy for a long time, but it wasn’t until the popularity of house flipping shows on HGTV that people started jumping on the bandwagon of flipping houses for a profit. Even though these shows make it look easy, it’s not as easy as it seems. If you’re not careful you can lose money rather than make money on a house flip. So here are a few important things to know before getting started in the business of flipping houses that will help you avoid any costly mistakes.
Mistake #1: Not taking the time to research the area.
Of course your Real Estate Agent can help you with this, but it’s important for you to know the area that you are looking to invest in. For example; What types of homes and price ranges are in the area? Which house style is common in the area? How are the schools? Is the location convenient to shops and restaurants? Is the location near highways? What features do homebuyers expect in homes in the area? How quickly are homes selling?
The answers to these questions will help you determine whether or not an area that you are thinking of investing in is the right choice for you.
Mistake #2: Start renovations without knowing your numbers.
Numbers are everything when it comes to flipping a house. With the help of your real estate agent, you’ve acquired a property at a great price, in a great location. Meanwhile your agent had looked at comparables in the area and gave you an ARV (after remodel value) for the property. Once you know the ARV, subtract out your AP (acquisition price), and what you are left with are monies that should cover; remodeling costs, staging costs, closing costs and most importantly net profit. Ideally investors are looking to net anywhere from 10-20%. Which is why it’s important to know your numbers.
Mistake #3: Start renovations without permits.
If your contractor advises you to start work without permits, fire that contractor and hire a new one. If you’re trying to save money by avoiding the cost of permits will cost you time and money in the long run. First, Village/City code enforcement will stop the job when it’s brought to their attention that you do not have the required work permits needed for the renovation. Second, savvy home buyers will want proof that all work has been completed to Village/City requirements. Especially when you are re-selling a home at a higher price point. So save yourself the headache and get the required permits from day one.
Mistake #4: Taking design advice from your Contractor.
Yes, your contractor will be able to tell you if that wall is supporting or not. They can give you ideas on how to improve the overall space, what will work in the space and what will not but, unless your contractor has a background in design don’t take advice from your contractor for your end design finishes. Your contractor’s job is to work on the bones of the house, they are responsible for the plumbing, electrical, building walls, headers – you get the idea.
When it comes to the end design, get advice from a professional. If it’s not in your budget to hire an Interior Designer, then your Home Stager or Real Estate Agent can guide you. The design finishes are so important when flipping a house. The finishes are what will attract homebuyers. The design features are what they see as soon as they walk through the front door. The end design is what helps sell the house. It’s great that your contractor added extra insulation in the attic but homebuyers can’t see that. What they do see are the flow of the rooms, kitchen cabinets, counter tops, backsplash, flooring, lighting, and bathroom tile – to name a few. Your end design can make or break the success of your house flip.
This is why it’s important to know the house style upfront. Make sure you know the specific style you’re getting and determine if you are keeping that aesthetic or changing it to the appropriate aesthetic. Also, don’t skimp on quality, again savvy home buyers know. I’m not saying to blow your budget on end design finishes but they should be inline with what home buyers expect in relation to the price range of the house.
Mistake #5: Overpricing the house.
Setting the correct market price from the beginning is especially important when flipping a house. The last thing you want is for the house that you just renovated to sit on the market, and potential home buyers thinking that something is wrong with the house because it hasn’t sold. Correct pricing from day one, will get you more homebuyers through the door, it will generate more interested homebuyers and a possibility of multiple offers on your house. The following graph shows further the impact of pricing.
Mistake #6: Not having the house staged.
You’ve gone through months of renovations. You’ve made sure that everything was done right, you did a phenomenal job. Now is the time to show off all your hard work. This is where home staging comes in. Home staging will enhance the features of the house. It will remove the question that homebuyers often ask themselves – “Where does the furniture go?.” Home staging gives homebuyers that “wow” moment as soon as they open the front door. And that “wow” moment is what helps sell the house. It makes homebuyers fall in love with the house. And that is exactly what you want, homebuyers to fall in love with the house that you just renovated. Home staging is an important part of house flipping, it will help you sell the house faster, and a fast sale is what you want when time is money. So make sure to add the home staging cost in your budget, you won’t regret it.
House flipping can be a profitable business if done right. The key is to have a plan, follow the plan and educate yourself as much as possible to help you avoid any avoidable mistakes.
More Helpful House Flipping Resources:
Tips for Buying a Fix and Flip for Investment – is an extremely helpful article that shares tips and ideas that will guide you through purchasing a property for investment purposes.
Top 5 Things to Know When Flipping your First House – there is a lot to learn when taking on a project for the first time. This article will open your eyes to the potential risks of flipping a house, and give you the steps needed to help your house flip run smoothly.
Buying a Fixer-Upper: What You Need to Know – this article gives you several things to keep in mind before you get started. What your goals? The importance of having a plan before getting started. And also gives you a step by step guide on finding the right property, how to finance that property and so much more.
For any additional questions you may have, feel free to reach out. I’ll be happy to help!