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Fix and flip projects can be great for investors looking to make a quick return from real estate. They can be completed in a relatively short amount of time, and the substantial return on investment can serve as a launchpad for other, more long-term projects. Achieving a successful flip isn’t as easy as the home flipping shows make it seem though. These investments require careful planning and execution, and there are several pitfalls you can encounter that have the potential to derail your project. Learning how to identify and avoid these mistakes is vital to ensuring your investment’s success. Want to learn more? Here are the 5 most common fix and flip mistakes investors make along with some tips on how to avoid them.
1. Overestimating the After-Repair Value (ARV)
First and foremost, you need to have a good idea of the potential value of your investment after all the work is done to it. Investors tend to be very optimistic with their estimates, because after all, you want to make as much money as you can with your investment. But it’s important to be realistic if you want to have a successful flip. Overpriced homes will sit on the market for longer, leading to increased holding costs that will eat into your final returns. To avoid this mistake, be sure to conduct thorough market research so you can identify similar properties that have already sold, then you can price your home accordingly. Be sure to factor in local market conditions, neighborhood trends, and buyer demand in the overall market.
2. Underestimating Renovation Costs
In a similar vein, investors tend to underestimate the total cost of renovating a property. It’s important to get accurate estimates on material and labor costs to get a better idea of your total expenses. More importantly, it will be crucial to get a full scope of the work you’re planning to do and how long it will take you to do it. Delays mean higher holding costs, so getting this work done as soon as possible is a priority. Be sure to get detailed quotes from contractors before purchasing a property to help you avoid overspending. It may also be worth including a contingency fund of about 10% to cover any unexpected costs that may arise.
3. Ignoring Location and Neighborhood Trends
Location is a key factor in any real estate deal, and you would do well not to avoid it with a fix and flip investment. A beautifully renovated home will still have trouble selling if the location just isn’t in demand. Generally, buyers will be looking to live in quiet neighborhoods that have access to local amenities and also good transportation options. Family-oriented buyers will also be interested in the quality of schools in the area. It can be a good idea to research up-and-coming markets as well, as you can benefit from the increased demand by the time renovations are completed. Similarly, an area experiencing major infrastructure development can be a sign of a good place to invest in.
4. Poor Project Management
The impact of poor project management is twofold, because it can increase your renovation budget and it can extend the timeline of the project, which incurs more holding costs. It’s vital that you employ project management techniques to help you stay on track. Keep in touch with your contractors on a regular basis to ensure work is getting done properly and you can work around any delays as soon as they come up. When selecting contractors, you should vet them by looking into customer reviews, and asking for examples of previous work. This way you can be sure that you’re hiring genuine professionals will deliver on the level of quality you’re expecting.
5. Failing to Understand the Local Real Estate Market
If you don’t truly understand the market you’re selling to, you might have trouble finding a buyer for your property. First, local markets vary more than you might think, with certain areas being in significantly higher demand than others. You don’t want to misprice your home based on bad data, as this will only lead to the property sitting on the market for longer. Additionally, you want to have a good idea of the types of buyers in a market, so you can know how to target them with your selling efforts. You can build a profile of your ideal buyer, and tailor your renovations and marketing to them. For example, in an area with a lot of family-oriented buyers, homes with extra bedrooms and a yard will be in demand, while adult professionals might prefer homes with flexible spaces that can easily be converted into extra storage or a workspace.
RCN Capital
The easiest way to save on your next investment is to obtain financing from a real estate lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you are looking to finance a fix and flip project, RCN Capital has competitive loan options available.