Are you new to real estate investing? If you want to invest in a fix and flip property, you might want to avoid some of the most common pitfalls. Here’s 7 common fix and flip mistakes that could cost you loads of time and money in the long run.
7 Common Fix and Flip Mistakes
Lack of Market Research
A lack of market research is the most common mistake for real estate investors flipping a property. You may think you have your investment laid out, but without the proper research you can find yourself facing all sorts of obstacles. Many real estate investors take time to research the local market to scope out their profits before jumping into a fix and flip property. Often, a particular feature of a house will have differing values depending on the neighborhood the property resides in. Out of all the common fix and flip mistakes, having a lack of market research is very preventable.
Over-Spending on Renovations
As you journey through the fix and flip process, you should watch out to avoid over-spending on renovations. Plan a budget before you start your project and be sure to stick to it throughout the process. Remember to add renovations that add value to your house based on what’s more valuable in your property’s neighborhood. Cut your budget back by not spending money on worthless renovations. Although you may think your profits will cover the extra costs, you will find that these expenses quickly pull from your profit margin.
Not Keeping a Timeline for Completion
With any fix and flip project, you should construct a timeline of completion for your property. In case you encounter an unexpected roadblock, you’ll still have a clear map of completion for your project. Having a laid out timeline helps your renovation process stay on track. If your fix and flip project needs extra time for completion, having a timeline will give you a guide of what should be done around what date. When there is no timeline, your renovation process could easily become lengthy.
Remodeling with Your Personal Tastes in Mind
One of the common fix and flip mistake investors make is remodeling the property with their tastes in mind. Just because you like certain styles and additions doesn’t mean it will necessarily add value to your property. You should focus on investing in renovations that add real value to your home instead of just pleasing your personal tastes. Avoid making the mistake of buying renovations just because you like them, and instead put that money towards renovations that have broad appeal, such as fresh paint for the walls in neutral colors.
When you over-leverage, you are borrowing more money than you need to complete a fix and flip project. Many investors make the rookie mistake of borrowing more money than they need to renovate their fix and flip. By planning a budget ahead of time, you should know exactly how much capital you will need to borrow for your investment. Avoid borrowing too much capital as your payments will be higher for no good reason. Just because you are offered a bigger loan doesn’t mean you should take it.
Hiring the Wrong Contractors
Another common fix and flip mistake is not properly screening contractors. At the end of the day, the contractor will decide how successful your project will be. Investors should screen contractors heavily and get recommendations from trusted connections to find the right fit. If you’re unsure about a contractor, ask about their previous work and demand examples. When you finally hire the right contractor for the job, you should create a clear contract outlining their duties and what you are financially responsible for. Hiring the right contractor will determine the outcome of your fix and flip project, so be sure to choose wisely.
Having No Exit Strategy
In any good investment, having a clear exit strategy will be useful for when it’s time to take in the profits on your asset. One of the most common fix and flip mistakes is forgetting to have a clear exit strategy. In times of market uncertainty, you should have multiple exit strategies devised in case something goes wrong with your original strategy. You should be prepared for anything that is thrown at you in the real estate market, and having a clear exit strategy will help you to offload your asset, allowing you to move on to the next project.
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.