Flipping properties may look simple from an outsider’s perspective: you purchase a property, slap on a few coats of paint, and resell it for a substantial profit. You see it on television all of the time. Unfortunately, this vision doesn’t live up to the hype because it’s not so simple in reality. Flipping a property for profit demands a lot of planning, experience, teamwork, and resilience. Based on our experience, we’ve listed six common fix and flip investing mistakes to avoid when you’re planning for a future project.
Overspending or Underestimating Costs
One of the most common mistakes people make when flipping houses is not budgeting correctly. There are a lot of expenses that can fluctuate during the process, so it’s important to set aside enough money for unexpected costs. However, you don’t want to end up overspending and cutting into your profits. Real estate professionals recommend not spending more than 70% of your projected after-repair-value (ARV) when buying a property. This ensures you have enough buffer room to complete repairs and still make a profit.
Forgetting to Purchase Property Insurance
Neglecting to buy property insurance before investing in a property is an amateur mistake. Property insurance reimburses owners and reduces risk for house flipping projects, if and when damages occur on the property. If you’re flipping a property to get a return on your initial investment, then you’ll need to do everything in your power to protect what you’ve put into the project. Investors can either purchase property insurance coverage locally or online, but it’s best to do your research as premiums can vary!
Going in Alone
Many investors are highly skilled, somewhat perfectionists who have high standards. However, very few people are capable of doing everything by themselves even on a basic rehabilitation project. In fact, trying to do everything yourself can harm your project’s timeline and will inevitably cost you money. Using a team of trained professionals will help to expedite the project, meaning that you will minimize the time your investment is at risk. Take some time to build your network of trusted professionals. Meet with contractors, realtors and lenders to feel out their professional style and see whether they would be a good fit for your needs.
Taking on Too Big a Project
If you’re just starting out, it’s best to keep your flips manageable. It can be an exciting endeavor to flip your first house, but taking on too big a project can come back to bite you. Start slow with properties that need minimal work, and gradually work your way to a bigger project.
Working With an Investing Partner Who’s a Bad Fit
Flipping a property is a huge endeavor and investors often look for help wherever they can find it. That being said, avoid working with friends who suggest they’re happy to invest or help renovate.
Flipping a property can be stressful, so you want to work exclusively (for the most part) with trusted sources and experts who are familiar with the renovation process and are experienced enough to handle the project. You may want to avoid working with your “handyman” friend as to avoid straining your relationship should the project not go as planned. Work with a respected contractor that you’ve vetted to ensure you get quality work, which will help with the return on investment.
If you’re working on an historic property, be sure to seek out an expert who specializes in older homes— newer builders may not understand the nuances of renovating older homes.
Lack of a Defined Exit Strategy
Finally, to really guarantee your success for your next property flipping project, always prepare an “exit strategy,” which relies heavily on the price point at which you’ve listed the home.
Talk with a realtor to determine the listing price, so that you can price your property to sell quickly and cut down on the time during which carrying costs are incurred.
Remember, flipping houses isn’t an overnight project. It’s an investment that takes preparation, research, financing, skill, and an experienced team.
Looking for Funding for Your Next Fix and Flip Project?
RCN Capital offers short-term and long-term financing options for real estate investors, commercial contractors, developers & small business owners across the nation. 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 fix & flip investment.