Flipping houses is a fantastic way to earn money from real-estate investment. You purchase an old house below its market value, renovate it and then sell it at a greatly increased price.
The number of homes flipped in the United States increased last year and this trend is continuing into 2022. In 2021, a total of 323,465 homes were flipped, which 26% more than 2020 and the most since 2006. Then, in just the first quarter of this year 114,706 homes were flipped- that's 7% more than the previous quarter!
With how easy flipping homes appears on fixer-upper television programs, it's no wonder that more people have been venturing into the practice in recent years. Though it may seem easy to buy and flip property, it is more difficult than you might think.
If you're considering flipping houses, here are some of the most common mistakes people make -- and how to avoid them.
7 Common Mistakes House Flippers Make
1. Not Doing Your Due Diligence
If you're considering buying a property to renovate it and sell at a profit, remember to thoroughly research the house first. This includes talking to a real-estate agent knowledgeable about the area, trends affecting prices in similar properties nearby, building inspection, and more.
Without taking these factors into consideration from the start, you're more likely to face issues later on in your house-flip journey. For example, if you don't make accurate predictions about costs beforehand, you may have to spend more money than planned on renovations or carrying costs associated with owning the property during flipping process.
2. Not Having Enough Funds
A major error that individuals make when flipping houses is not following their budget. If you're considering investing in real estate, you need to have a clear understanding of the costs associated with the project from start to finish. Keep in mind that even fixer-uppers come at a high price tag; often costing tens of thousands to hundreds of thousand dollars for just the property itself. Use our mortgage calculator as starting point, and be sure to create a comprehensive budget before deciding whether or not purchasing a fixer-upper house flip is right for you.
3. Not Getting A Trusted Builder
The cost of renovating a house is what determines whether or not a flipping strategy will succeed in making a profit. The value of the house after repairs needs to be worth more than the amount put into repairing it. Many people think they can save money by taking on the renovation project themselves, but unless you know what you're doing, it's best to hire someone with experience.
If you take too long to complete the flip, not only will it lower the quality of repairs, but also increase things like utility bills, loan interest and insurance fees. If during inspection a potential buyer discovers something that wasn't repaired well, not only will they have a negative view of the home, it'll be harder to find other interested clients. Having a trusted builder helps avoid all these issues.
4. Lack of Commitment To The Project
If you want to generate income through house flipping, know that it's going to take up a lot of your time. You can't look at this as simply a hobby; otherwise, you won't yield any profit. In today's market, it could take months before finding the right property becomes available. Not to mention, after purchasing the home, there's still work that needs to be done in terms of renovations and repairs. This is something you need fully dedicate yourself too--that means setting aside time for each stage from start (demolition) till finish (selling). If possible though, avoid shouldering all the responsibility by yourself so you don’t get overwhelmed; delegate some tasks out.
5. Not Knowing How To Pick The Right Property
To have a successful house flip, you must choose the perfect property through taking into consideration the location and price. You ought to investigate any pertinent tax laws as well as zoning regulations before making a purchase. Spend some time learning about flipping houses in general; newcomers commonly make the mistake of impulsively buying the first residence they come across then working with contractor who submitted the lowest bid for renovations. The ideal situation would be if you had somebody experienced and successful in this field to teach you what you need to know.
6. Overpricing The Home When Selling
correctly pricing your house is key to a successful sale. Not only do you want to make money from the deal, but if you price it too high, then it will take longer to sell. This stretches out the amount of time you have carrying costs and takes away from any potential profits. You should research other properties in the area before making improvements or deciding on a listing price for your home.
7. Over Improving the Property
You could end up losing money if you spend too much just to make your flip better than the others on the block. keep it at a level where it's comparable to other top-selling homes in the neighborhood but don't go overboard with adding an expensive saltwater pool or marble showers. Yes, use quality materials for improvements, but be mindful about staying within your budget so you can protect your profit margins.
Ready to start your house flipping business?
Flipping houses can be a great way to make money, as long as you know how to avoid some of the mistakes that investors often make. If you want to flipping for profit, it's important to understand the time and costs involved in completing a flip.
Avance Group; Your Local Mortgage Broker
If you're thinking about purchasing an investment property in New Mexico, Avance Group is a local mortgage broker that can help you understand your investment and renovation loan options! Call us today at 817.524.6655 to get started!