Real estate investing as a whole is all about the long game. Put your money into the right property, manage it well, and you can see tremendous profits in the long run and steady returns in the short term.
But there is a hugely popular, and often hugely profitable, exception to this rule: house flipping. In a nutshell, house flippers buy a property at a low price, rehab and add value, and sell at a higher price to make a profit. When it’s done right, the return on investment is tremendous.
Many people, though, have tried to flip houses and lost a great deal of money. So, here are five mistakes every real estate investor should avoid, especially when flipping a property.
#1 Poor Budgeting
The biggest cost associated with flipping houses is usually the property’s purchase price. But house flippers who are unaware of the costs to rehab these properties, and don’t plan for unseen expenses, can quickly run out of money and not be able to complete the project.
Poor budgeting is one of the biggest mistakes any real estate investor can make, especially overpaying for a property and miscalculating rehab estimates for the property.
#2 Not Allocating Enough Time
Flipping houses requires time in two respects: enough time allocated to complete the project, and enough of your personal time.
One of the biggest mistakes a house flipper can make regarding “time” is not allocating enough time to complete the project. Rushing to complete the flip can result in poor quality and a lower sales price. Although completion of a flip must be fast in order to keep expenses low, a flip requires enough time to complete the work for optimal pricing power.
Another mistake a flipper can make regarding “time” is not dedicating enough personal time to the project, which can be costly because of mismanagement.
#3 Insufficient Research
To purchase and flip properties for a profit, real estate investors must exercise due diligence in researching:
- Property location.
- Finance of the flip.
- Effective rehab of the property.
- Resell of the property.
After years of experience, flippers develop a sixth sense about each of these areas of research, becoming walking encyclopedias about each and every aspect of a flip. But newer flippers need to research each aspect of the flipping process to ensure that good decisions are made throughout the entire process.
#4 Working With The Wrong Contractor
The contractor you use for a flip is one of the most important decisions you’ll make. A good contractor will save you money over the course of the project, eliminate headaches, and add profit to the bottom line.
A good general contractor (GC) acts as a single point of contact, which can allow you to simultaneously flip multiple properties, and also frees you up to look for the next deal.
Using a cheap or inexperienced contractor often results in disaster. Most importantly, a bad contractor costs more money in lost revenue than if you had paid a little more for a contractor to do the project correctly.
The choice you make when hiring a contractor can be the difference between making a profit and losing money.
#5 Failing To Stay Organized
House flipping isn’t easy, so it’s essential that every aspect of the project in organized and streamlined to maximize profits.
If you use a general contract, he will keep the flip organized and moving through the whole process. But if you can’t afford to hire a contractor, consider using a project manager who can be on site and coordinate the rehab.
Even with the best contractor or project manager, there is still a great deal for you to do in respect to making design decisions, solving problems, overseeing the budget, and preparing to sell the property. So good organizational and management skills are essential to successfully flipping real estate.
Graystone Investment Group
Graystone helps new and seasoned investors find, rehab and manage investment properties. We have researched the Tampa Bay area neighborhood-by-neighborhood to determine where investments are likely to have the most return per capital.
Unlike other wholesaling groups, we find properties that we resell to investors at discount prices, while also connecting them with private financing. We also coordinate with rehab and management companies we’ve worked with for years, at no extra charge.