The 4 Biggest House Flipping Mistakes
House flipping can be a lucrative hobby, side-gig or full-time job. Since the early 2000s, house flipping has become a popular and exciting way to turn a profit. That said, it can be easy to let the excitement overtake common sense, which leads to mistakes. Some of these mistakes can be costly. We’ve outlined the top 4 biggest house flipping mistakes to help you navigate your way through the process, whether you’re new to the game or a seasoned real estate professional.
1. Not Doing the Math
When starting a house flipping project, it’s important to lay out all the essential numbers: how much you have to invest, whether you’ll obtain short-term financing from a hard money lender (HML) and at what interest rate, utilizing gap funding, the cost of the house as-is, how much you want to invest in rehabbing, closing costs, the After Repair Value (ARV), and the projected difference between profit and what you need to pay back. Going into a project without knowing those numbers up front may mean you don’t make a profit or worse – you end up in debt. It’s advised that you never spend more than 65% of the ARV – meaning you should be able to buy and rehab the home at no more than 65% of what you plan to sell it for after all is said and done.
House flipping is a complex process that requires patience and a lot of research. If you go into the process with a rushed mindset, you are likely setting yourself up for failure. It takes time and dedication to find the right house, rehab the house in a way that makes it appealing to the local market, schedule inspections, and actually show and sell the house. You should go into the project with a realistic mindset for time commitment and ensure you have the patience to budget your time accordingly.
3. Not Understanding the Market
House flipping is not as easy and buying, rehabbing and selling a house. You have to understand the local market as well as the needs of prospective buyers. These things have a huge impact on profitability and need to be taken into serious consideration. Is the area in which your buying seeing rising home prices? Do a lot of families live in the area? These things will not only affect the price for which you’re able to sell but also how you’ll need to rehab the home to appeal to local buyers.
These things are important to consider and boil down to one thing: “When it doubt, comp it out.” That is, go back to #1. If the ARV and Days on Market (DOM) make sense, you should feel comfortable proceeding.
4. Letting Emotions Skew Judgment
Flipping a house is a lot of work. It requires research, time, money, elbow grease and patience. You may have had to do significant renovations on a home that was once unlivable. All of these things can lead to a sense of entitlement and even greed. It can become tempting to overprice a home because of all the hard work that went into it, but this may prevent you from making a profit at all if the house doesn’t sell. If you’ve done the research and the math and have a solid ARV that you calculated before you started the project, stick to it.
The biggest takeaway here is: do your research. It’s important to get all the information before jumping in with both feet and also to remember that successful house flipping requires a significant dedication of your time. Patience is a lauded skill in this field. Avoiding critical mistakes can mean the difference between tens of thousands of dollars in profit. With the right combination of time, money, effort and dedication, you can make a lot of money flipping houses.