Home flipping continues to be one of the most popular methods for making money through real estate. Flipping provides investors with great returns in a relatively short amount of time, and these returns can then serve a launchpad for other investments, making flipping a great option for new investors. If you are a new investor, or have never flipped a property before, you should take time to research the flipping process so you can better understand it and avoid any bad investment decisions. There are many common mistakes rookie flippers make with their first investment that ruin their returns, or even end up costing them money. Continue reading as we cover the top 10 mistakes to watch out for, along with some key tips on how to avoid them with your next project.
If you’re new to the real estate game, you might not have a good idea of the real cost of many of the expenses associated with an investment. There are so many examples of investors running the numbers before their project begins just to have to overlooked, unexpected costs that crop up which significantly hurt their return on investment. The best way to avoid this issue is by taking the time to create an accurate and comprehensive budget, with line items detailing each portion of the project. It can also be good to leave a 10% buffer in your estimates to cover any unexpected costs.
One of the best pieces of advice you’ll hear when it comes to real estate investing is to do your due diligence. Making large investment decisions on a whim is sure to lead to bad outcomes, so you need to take the time to research any potential properties before making a commitment. Besides evaluating the home’s condition, you will need to take a look at the surrounding area, and also take market trends like population growth into account. You should also consider hiring a professional property inspector to uncover any hidden issues that are too costly to be worth your investment.
A common mistake that newer investors make is trying to do everything on their own, instead of building a strong network of professionals that can help them succeed. You may be trying to save on your project by taking matters into your own hands, but this will often lead to costly errors caused by a lack of experience. Instead, you should strive to have a team you can rely on, starting with professional contractors that you have vetted, an experienced real estate agent to help you make the most of the sale, and an accountant or other tax professional to maximize your after-tax income.
The next mistake we want to discuss is choosing the wrong renovations to perform while restoring a property. Investors tend to let their personal tastes get in the way when making style decisions for the home. The problem is, not every buyer will share your tastes, and they might even be put off by your particular choices. It’s better to err on the safe side by choosing upgrades that everyone will find value in (that means no pools or hot tubs), and choosing a neutral color palette for the interior that appeals to all buyers.
Along with choosing the right renovations to perform, you will also need to be careful not to cut corners during the process. As the saying goes, time is money, and there is some incentive for you to offload the property faster so you can stop paying holding costs. However, by choosing to rush certain steps of the process you end up delivering an inferior home to the market, and this can really end up hurting your deal. A keen buyer will notice your cut corners, and the money you saved during renovations will only end up getting offset by a lower final sale price.
Before you begin any work on your project, you will need to ensure that you are compliant with area regulations, and have all necessary building permits in place. This is especially important if you are doing major work to a property like making an addition, or changing the classification of the property (for example, splitting a single family home into 2 units). Regulations will vary depending on your location, so be sure to check both local and state laws regarding investment properties.
There tends to be a heavy focus on renovating the interior of a property when you’re flipping it, which leaves many homes lacking when it comes to curb appeal. The thing is, first impressions can have a huge impact on potential buyers, and a great exterior often leads to a higher final sale price. Pictures of the home’s exterior will also play a big role in the quality of your listing. For some quick fixes that can boost curb appeal, start by taking care of landscaping, and a fresh coat of paint can go a long way too.
Having a clear exit strategy will help you point your efforts in the right direction and help you maximize your return on investment. Not having a plan will more than likely leave you aimless and extend the length of your project, incurring more closing costs. It may also cause difficulties in selling your property, forcing you to pivot to a rental strategy with the home. You should also be aware of seasonal patterns in real estate, which you can take advantage of by carefully timing your project.
When it comes time to sell your property, inexperience may cause an investor to wrongly price their home which prevent them from completing the sale. If you want to make sure your property is priced correctly, you should perform a comparative market analysis by taking a look at the value of similar homes in the same area. From there, you should price your property competitively while still leaving enough of a margin for you to profit.
Marketing is a key part of the flipping process since it helps you maximize the final sale price by increasing demand for the home. However, many investors overlook this important step or don’t dedicate enough effort to it, leaving money on the table. If you want to effectively market your property, start by taking great photos and creating a stellar listing that highlights all the home’s best features. From there, you can post your listing in local real estate groups on social media, and even utilize offline strategies like open houses and private viewings.
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 home flip, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.