Mortgage Blog

Common Mistakes That House Flippers Make & How to Avoid Them

October 12, 2022 | Posted by: Ronice Harrison

Mistakes That Can Make House Flipping a Flop

Common Mistakes That House Flippers Make & How to Avoid Them

Making it in the world of house flipping means making sound and prudent decisions. Read on to learn more about common house flipper mistakes.

Buying a property to flip is no easy feat. House flipping is a massive investment and requires knowledge and planning to succeed. The following are common mistakes that can easily ruin your house flipping experience.

Mistakes That Can Make House Flipping a Flop<

1. Lack of Adequate Market Research

Your ability to successfully flip a house is determined by your knowledge of the real estate market and where you will buy the house. Unfortunately, the real estate market is volatile, so you will need to do plenty of market research before purchasing a home to flip.

Researching the current market trends will also enable you to estimate where the market will be in a year with some accuracy. Additionally, scouting for a desirable neighborhood with a high market growth will guarantee quick reselling of the property.

2. Unrealistic Budget

Creating a budget is the most critical step in a flipping project. To successfully flip a property, think about how much work it will take to bring it above the market value. Ideally, it would be best to look for a house that fits your budget to avoid escalated costs. It would help to compare the initial investment and repair cost to the property's fair market worth after six to twelve months. Keep in mind the 70% rule where you target to pay 70% of the property's After Repair Value (ARV), excluding the renovation costs. This rule allows for a 30% profit margin.

3. Inadequate Funds

Renovating and flipping houses is a cash-intensive venture. If you plan to fix up the house and make a profit from selling the property, you must consider the acquisition cost, renovation costs, and capital gains taxes, which will chip away at your profit. You can seek professional help to accurately estimate the cost of a property before you invest in it. Further, for a successful flip, you will need to partner with a trusted mortgages lender to extensively explore more funding options and set up credit lines to cover any unexpected financial hurdles you may face.

    4. Attempting To Do All the Work on Your Own

    There are tasks such as demolition, which you can do on your own to save on labor costs. While doing some tasks will reduce the possibility of eating into your profits, avoid DIY projects if you do not have the appropriate training and experience. For instance, you need to enlist professionals to do the renovations and repairs for plumbing and electrical work. Doing jobs outside of your skillset may result in more costly mistakes than if you had hired a contractor in the first place.

    5. Underestimating the Time The Flip Will Require

    It can take several months to find and buy the right property. The longer a flip takes, the more you pay in the house's mortgage, interest, insurance, and capital gains taxes. Once you acquire the desired home, you will need enough time to flip it, schedule inspections to ensure the property complies with applicable building codes, and finally sell it.

    Even if you choose to outsource the job, you will still have to spend more time supervising the project to make sure everything is going according to plan.

    6. Taking on Flips That Require a Lot of Upgrades

    Sometimes it is easy to get caught up in the excitement of a potential flip and overlook the amount of repairs needed to achieve a profitable return on investment. When searching for likely houses to flip, you should stick to homes that require just a few updates and won't cost a fortune to fix. In addition, it is crucial to have a licensed contractor inspect the home before you buy it to help avoid investing in the wrong project.

    House flipping may look straightforward and seamless, but failure to be keen on the above key mistakes could lead to massive losses.

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