Have you ever thought about flipping houses as a way to make some extra money?
You've seen the HGTV shows and you're convinced you can make a killing by flipping houses. You're not alone. According to RealtyTrac, almost a quarter of all home sales in the U.S. are now flipped homes.
It sounds like a fantastic idea, right? You buy a fixer upper for a low price, put some money and elbow grease into repairing and updating it, and then sell it for a much higher price and pocket the difference. Who wouldn’t want to do that?
Unfortunately, house flipping is not as easy as it seems. There is a lot that can go wrong and make your flipping adventure, a flop. While there's certainly money in house flipping, there are also a lot of potential pitfalls and risks. In this post, we’ll discuss some of the biggest mistakes that can happen in house flipping.
House Flipping and How it Works
Before we get into the mistakes that can make house flipping a flop, let’s first talk about what house flipping is and how it works.
House flipping involves buying a property, usually a fixer upper, and then repairing and updating it with the only purpose of reselling it for a profit.
Flippers typically try to find properties that they can buy for a low price and then sell for a much higher price after making the necessary repairs and updates. They hope to make a large profit margin on each flip in order to offset the costs of the repairs and updates, as well as the cost of the original purchase price.
Insufficient Funds
One of the biggest mistakes that can make house flipping a flop is insufficient funds. When you’re flipping a house, there are a lot of costs that you have to account for including the purchase price of the property, the cost of repairs and updates, real estate commissions, and more.
If you don’t have enough money to cover all of these costs, that can cause you a lot of financial trouble. You could end up being unable to make the necessary repairs and updates, which would make it difficult to sell the property. You could also end up having to sell the property for less than you paid for it, which would result in a loss.
Talk to a real estate agent, contractor, and other experts to get an idea of what you’ll need to budget for. Have enough money in your savings that can cover all of the costs, as well as a cushion in case of any unforeseen expenses.
Not Enough Time
Another mistake that can make house flipping a flop is not having enough time. When you’re flipping a house, the process can take a lot longer than you might expect. Between finding the right property, dealing with repairs and updates, even trying to sell the property, the process can take months or, sometimes, even years.
Without dedicating the necessary time to flipping a house, you can face a lot of trouble. You could be paying too much for the property, not being able to make the necessary repairs and updates, and having to sell the property for less than you paid for it.
Get a good understanding of how much time the flipping process will take before you start. Consider how long it will take to find the right property, make the necessary repairs and updates, and sell the property. Lastly, make sure you have the time available to dedicate to the process.
Lack of Knowledge
A common issue flippers often make when flipping houses is lack of knowledge. Just because you've seen a few episodes of HGTV doesn't mean you know everything there is to know about flipping houses.
There's a lot to learn. From understanding the real estate market, knowing what properties are likely to appreciate in value, feeling confident in your ability to renovate a home, and staying within your budget - there are a lot of factors to take into consideration.
If you're going to flip houses, it's important to do your homework and learn as much as possible about the process before you get started. This includes how to find the right property, how to finance the purchase, how to make repairs and updates, how to market the property, and how to negotiate a sale.
Not Having the Right Skills
When you’re flipping a house, there are a lot of different skills that you need to have in order to be successful. You need to be able to find the right property, finance the purchase, make repairs and updates, market the property, and negotiate a sale. And that’s just the beginning.
Flipping houses is not a passive investment. To be successful in house flipping you need to be actively involved in the process, from finding the right property to oversee the renovations to marketing the finished product.
In addition to all of these skills, you’ll also need to be able to work with other people. You’ll need a good attitude, effective communication skills, and the ability to work with different types of people.
If you’re not sure about all of these skills, consider taking a course to learn more about flipping houses.
Not Being Patient
There’s one more thing that you need that’s often overlooked and that’s patience. Like all investments, flipping houses takes time and there are no guarantees along the way. By being patient and staying on course, you can increase your chances of success.
Far too often people get caught up in the excitement of flipping a house – they want to rush through the process and get to the finish line. However, rushing through the process can often lead to subpar work, over budget renovations, and a finished product that's less-than appealing to buyers.
When you buy a home to flip, the market may be in the middle of a massive bubble that’s about to burst in the near future. Or there may be signs of a downturn that you didn’t initially anticipate.
Either way, the market will change and being patient is the way to handle these kinds of situations. If you’re nervous about a pending market crash, don’t change your plans. Hold onto the property and wait for the market to rebound. It could take a couple of years to come back, but it will, and you’ll be in a great position to make a hefty profit when it does.
House flipping can be a great way to make money, but it’s not as easy as it sounds. A lot can go wrong and make your flipping adventure a 'flop.' To avoid these mistakes make sure you have a good understanding of all of the costs involved in flipping a house, you have the time available to dedicate to the process, you know what you’re doing, and you’re patient.
