5 House Flipping Mistakes That Will Turn Your Flip into a Failure
As a flipper, you need to keep your eye on the prize and work hard to bring the most value out of a property that you can. Otherwise, your flip may just wind up being a flop.
Flipping is a popular short-term real estate investment strategy where investors go out and purchase property for the purpose of reselling it at a profit. Of course, naturally it is not as easy as just buying a property and immediately listing it at a higher price, there is a lot of time and effort that goes into flipping a property in order to make it truly worth that newer, higher price.
However, a strategy as profitable as flipping does not come without a proportional level of risk. If you are not properly prepared and make too many house flipping mistakes, your plans to turn a sizable profit off of a property may turn into a devastating loss.
So, in order to help you prevent turning your next flip into a flop, here are five house flipping mistakes you should avoid making.
Avoid Major House Flipping Mistakes
Did you know that many house flipping mistakes can impact more than just your ability to sell the property? Many house flipping mistakes negatively impact the total value of the property - something that many mortgage lenders will penalize buyers for doing.
After all, until you pay off the mortgage, the lender holds a stake in the property you are flipping. As a result, any house flipping mistakes you make, hurt their investment just as much as it does yours.
So, let us teach you how to avoid house flipping mistakes in order to keep yourself on the lender's good side. All you need to do is click the button below to book a free strategy call with us today.
Rushing Into It
Being eager in real estate is usually a good thing. After all, if you spend all your time waiting on the sidelines there are going to be valuable deals that can pass you buy overnight. However, that does not mean you should try to rush into things without first being properly prepared. After all, rushing into it is one of the easiest house flipping mistakes to avoid.
New flippers may consider buying the first house they can afford with the intention to hire a contractor to apply a quick coat of paint and replace a couple lights and expect to turn a hefty profit. However, this is not the case. Oftentimes, the right property takes a little longer to find. You will usually need to find a property with visible room for improvement that is listed below the average price for comparable properties in the area. This can take time, but experienced flippers know that if you are patient enough to narrow down your search the end result is usually much better.
Lack of a Plan
One thing that is worse than rushing into a flip, is rushing into a flip without a plan. Out of all of the possible house flipping mistakes, this one can result in some of the worst failures. While the shows on HGTV and YouTube would lead you to believe that flipping is easy and can happen practically overnight, the truth is flipping is much more complicated than that.
Before you do anything, you need to properly hunt for a property that has the right potential to be used as a flip. These are properties with visible room for improvement that are valued below the current market average. Then, you need to make sure that you develop a strategy to complete all of those tasks properly and effectively. This includes developing a budget, timeline, and a team to work on the flip in order to achieve the best final result.
You also need to have a clear idea of what the after-repair value will be and how much you expect to make in profit at the end of the flip. Many flippers rely on the 70 per cent rule – meaning they plan to spend no more than 70 per cent of their after-repair value on the initial purchase and the renovation costs.
Insufficient Funds
This is probably one of the few house flipping mistakes that can sneak up on you even if you are careful getting into it.
A critical mistake that can ruin any flip is attempting to flip a property without the required funds set aside to do the work. Property flipping is an expensive process and while it can generate a satisfying return on investment by the end, you will only ever make it to that point if you have the funds required to get the job done.
Some of the expenses you will need to budget for in preparation for a flip include:
- The Down Payment
- Closing Costs for the Purchase and Sale
- Material Costs
- Labour Costs
- Utilities
- Mortgage Payments
- Insurance Payments
Without these funds properly set aside, you can potentially find yourself running out of money and defaulting on your mortgage for the property or being forced to sell the property early while the work is in an incomplete state. Selling early is incredibly dangerous for flippers because they will not make nearly the same profit they had initially planned for, or worse yet they may lose money on the sale depending on the state of the home at the time of sale.
Discover How To Flip A House With This Step By Step Guide
Not Budgeting Enough Time
One of the major house flipping mistakes that new flippers tend to make is not budgeting enough time to complete the work that the property needs. Even if you have enough money set aside for all of the updates and renovations you need, if you do not have enough time to get everything done, you can find yourself holding on to a half-finished property for much longer than you prepared for.
It is important to remember that while you are flipping a house, you are still liable for the mortgage payments on that property – even though the property has not profited you a single cent yet. This means that if your budget does not match up with the actual timeline you need to complete all of the work, you might be forced to sell the property early in an incomplete state or hold onto the property in order to finish the work while your profits are eaten up by unplanned mortgage payments.
Not Trusting Professionals
When you are completing a flip, there are going to be plenty of tasks that either require a professional to come in and do the work or would be much simpler to do with the help of a proper contractor or trades worker. While it can be tempting to forgo the experts whenever possible to save on costs, paying for the professionals to come in and do the job will usually lead to a more reliable and high-quality end result.
The professionals want you to succeed and will do their best to help you avoid making other house flipping mistakes - let them do that for you.
Financing Your Flip
If you are looking to enter the world of residential property flipping, let us help you by matching you up with one of our expert lenders here at LendCity. We will run your application through our network of lenders to help you find the best rates with the fewest conditions to make your next flip the success you have been waiting for. To get started give us a call at 519-960-0370 or visit us online at LendCity.ca
Alternatively, learn how to keep your mortgage safe by avoiding key house flipping mistakes by clicking the link below to book a free strategy call with us today.