Are you interested in flipping properties? Whether this is your first fix and flip or your tenth, here’s 6 common fix and flip challenges to avoid.
6 Common Fix and Flip Challenges to Avoid
By avoiding these mistakes, you’re bound to achieve success on your next fix and flip project.
Not Getting Enough Funding
Before starting your fix and flip, be sure to have a solid financing plan that you can rely on during the course of your investment. One of the most common mistakes an investor makes is not acquiring enough funding for their project. There are various ways to finance your fix and flip project that stray away from your traditional long-term mortgage. Short-term fix and flip loans offer the opportunity to build a relationship with a lender on top of getting you funding more quickly than a traditional loan. A savvy investor always considers all their financing options before signing a deal.
Over-Improving the Property
One of the most common mistakes real estate investors make is over-improving properties to their likings versus only adding improvements that help increase the property’s value. Just because you like certain elements or upgrade it doesn’t mean they will add value. This is a surefire way to increase your budget and decrease your profit margins. When adding cosmetic updates, stick to those that actually add value to the home and appeal to your target market.
Not Staying Within Your Budget
When acquiring a fix and flip property, you should immediately estimate the renovation costs so you can set a clear budget. A common mistake for many real estate investors is not staying within their budget, as unexpected repairs can quickly eat away at available funds. During the renovation stage of your fix and flip, be mindful of every penny you spend by tracking expenses. Don’t be afraid to negotiate with contractors for the best materials and labor price, you’ll never know if you don’t ask!
Not Having an Exit Strategy
Through all the excitement and joy of renovating a fix and flip property, the most common mistake investors make is forgetting to plan an exit strategy. While your mind is thinking about the renovation costs and timeline, you also need to be thinking about how you’re going to sell the property once it’s complete. If you plan on listing your property on a multi-listing site, you may be subject to certain fees or penalties. On the other hand, if you choose to sell your property to a private investor, you can expect to avoid fees, but instead might have to sell the property at a discount.
Even the nicest properties have trouble selling in a bad location. This common mistake is easily avoided by researching the neighborhood of your property and it’s development. An area with heavy crime or a lack of amenities will surely put a dent in your final sale price. A safe neighborhood ideally includes:
- Street signs
- Street lights
- Curb appeal
On top of these safety features, a favorable neighborhood generally offers these amenities:
- Grocery stores
- Business parks
Short commutes to all your favorite amenities can quickly motivate a potential buyer to finalize a deal.
Too Many Large Repairs
When you purchase your fix and flip, you expect to perform repairs but when do you draw the line between making profits and breaking even? When you acquire a property with too many large repairs, your profit margin is in jeopardy. These red flag repairs should be avoided at all costs:
- Foundation Issues
- Electrical and Gas Lines
- Water Damage
Large repairs like the ones listed above are examples of fixes that are nearly impossible to complete without tearing the whole house apart. These repairs don’t add much value to a home, instead they only drain your wallet. The possible lingering effects of mold and water damage can be seen for years at a property, and it would ultimately cost more to fix these problems than it would to purchase a different property with less issues.
RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. Connect with us today to discuss your next real estate investment.