If you make mistakes while flipping a house, you can cost yourself serious money. Learn how to flip a house the right way here.
There are a lot of misconceptions about how to flip a house. It turns out it’s not as fast or glamorous as “reality” television makes it.
From unexpected costs to theft, there’s a lot they don’t tell you about house flipping.
But if you’re interested in real estate, house flipping can still be a valid investment. You just need to know what problems to expect and how to solve them.
Here are 5 house flipping mistakes you need to avoid.
1. Underestimating the Project
If you’re new to house flipping, it’s all too easy to take on too big of a project. Make your first few flips manageable. Look for properties that need minimal amounts of work. As you grow in your knowledge, skills, and income, you can advance to bigger projects, or hire professionals for some of the work.
Aside from underestimating the time and labor involved, many underestimate costs. A lot of material expenses can fluctuate during the process, causing the house flipping cost to fluctuate as well. Other costs that are frequently forgotten about include closing costs, taxes, and utilities.
Sometimes major issues aren’t always apparent. Plumbing and structural issues may not be revealed until renovations have begun. These unexpected costs add up, so make sure to budget for them.
Flipping your first house can be an exciting project. But underestimating the time, costs, and labor involved is sure to make you miserable – and eat into any potential profit.
2. Over Improving the Property
When improving a property, it’s important to look at what comparable properties in the area offer. If the rest of the neighborhood offers luxury amenities, then you may need to upgrade your fixtures and complete additional repairs.
However, if other properties in the neighborhood are less expensive, adding additional luxury features may not be necessary.
Over improving a property can also lead to overspending, potentially causing you to lose a lot of profit.
3. Not Understanding Your Financing Options
It’s no secret that real estate is expensive. While you can pay for property via cash, for most home flippers that’s not an option.
Fortunately, there are financing options to aid you. One of these is fix and flip loans. A fix and flip loan is a short-term loan used to buy and renovate a property. Usually, they are secured by the property you are renovating or purchasing.
If you’re looking for a fix and flip loan, we offer house flipping loans. We don’t charge for underwriting, document preparation, or the application.
Check out our general terms on fix and flip loans. We typically close within 5-7 business days.
If you already have a lot and are looking for additional funds to build, construction loans are an option. We offer construction loans from $100,000 to $5,000,000. Our loans are 9-12 months, with an automatic 3-month extension.
4. Being Impatient
A novice expects to rush through the home flipping process, hoping to turn a quick profit. They may rush to buy the first available properties they see. They may hire a contractor immediately, taking the first bid offered.
A professional will either have a network of reliable contractors that they regularly work with or do some of the work themselves. They understand that it’s important to work with licensed professionals who are skilled enough to do the work at hand.
Instead of hiring a real estate agent, they may try to sell the property themselves (“For sale by owner”). They may be due this simply to avoid paying a commission or fee to an agent, or they may be selling it to a relative or friend.
Selling a house on your own is not without its difficulties. Statistically speaking, these homes usually sell for less and can take longer to sell. You also have to deal with all communication and negotiations yourself, which can take a lot of time.
Every step of the home flipping process requires patience. It’s not a get-rich-quick scheme, so don’t get impatient and rush into it.
5. Selling at the Wrong Price
Choosing the right price involves a myriad of factors. How much money you invested into the property should be taken into consideration. Other factors that may affect the price include local taxes, the location of the property, and any nearby amenities.
At the same time, overpricing your property can be an issue. Too high of a price means the home may be on the market for a long time, remaining unprofitable for months.
Underpricing a property may lead to it selling sooner rather than later, but again you may not make a great profit.
Either over or underpricing may serve as a potential red flag for buyers. That’s why many home flippers prefer to work with an experienced real estate agent who understands the local market and knows how to price and sell a property.
Additionally, some housing markets are hotter than others. A good agent will understand this and price accordingly.
How to Flip a House
By now, if you’ve been wondering “how to flip a house,” you should have a better idea of what to do and what not to do. It’s definitely not easy, but avoiding these 5 mistakes will make your home flipping process easier.
If you’re looking for a loan for your next property, Merchants Mortgage and Trust can help. We offer pre-approval for loans. Our pre-approvals are valid for 60 days.
Get started today by completing our online application and uploading your documents. We can help you get the construction loan or fix and flip loan that you need