Top tips to avoid costly mistakes and maximize your rehab properties.
If you’re interested in property flipping and renovation, it’s crucial to distinguish between turning a fixer-upper into a forever home and flipping a property for profit—confusing the two could be a huge financial mistake. Here are the top ten pitfalls to avoid:
1. Getting emotionally involved with your rehab property. This is a big one. Successful home flippers always look for what we call here on the deal. The hairier the deal, the better. It’s tempting to overdesign or want to overbuild, but remember that this is a business. Keep those personal preferences in check and always stay within your budget.
2. Overpaying for the rehab property. Don’t rely solely on the tax records or other listings to determine the value. Research recent sales of similar properties and base your numbers on that average. And don’t just trust your real estate agent’s estimates blindly – always get a written bid for repairs before sealing the deal.
3. Moving too slowly on a rehab property. Great deals never wait around; when an opportunity comes your way, you want to be ready to move quickly. So get pre-approved by your mortgage company beforehand, have your proof of funds ready in hand, and have your insurance and contractors lined up.
4. Failing to obtain a written bid for the repairs before the contract. Many people take the realtor’s rehab assignment as fact, and the agent’s estimate can be lower than the actual cost. To be safe, always insist on a written bid.
5. Failing to vet the contractors that you work with. Not all contractors are created equal, and you don’t want to end up working with workers who disappear halfway through your project. So check recent references and ask the tough questions before signing any contracts. If you need a referral to a good local home service provider, just give us a call, and we’d be happy to connect you with one of our trusted providers.
“Before you go out and look at a real estate investment, take the time to educate yourself and consult with your trusted advisers.”
6. Neglecting to agree on a penalty if the contractor doesn’t finish on time. Deadlines are crucial. Build penalties into your contract to keep things moving and prevent endless delays.
7. Overbuilding for the neighborhood. Avoid the temptation to overspend on unnecessary features. Keep a close eye on your budget and the neighborhood average to ensure you’re not overextending yourself. It’s crucial to watch the project’s impact on your bottom line.
8. Trying to sell a rehab property for more than the neighborhood average. When you price your rehab property too high, you slow the sale and increase the holding cost. The longer the property sits on the market, the more you pay.
9. Using the wrong type of mortgage. Remember, we’re talking about homes with a lot of hair on the deal. That means they might have missing windows, missing doors, be in poor condition, have no flooring, or any number of issues. You cannot get a conventional or an FHA loan on this type of home. So, to keep out-of-pocket costs low, explore other financing types with the property, such as a bridge loan or a private hard money loan.
10. Using low-quality parts to save money. If you skimp when you rehab a home, people will notice, and your real reputation will be hurt. Strive for a balance between high-quality materials and reasonable cost. Remember that there is a big difference between high-quality parts and ego-based parts, and we never want to get emotionally attached to the property or over-improve it.
Before you go out and look at a real estate investment, take the time to educate yourself and consult with your trusted advisers. Read a book, pick a mentor’s brain, attend an upcoming seminar, or give us a call, and we’d be happy to help. We have over 20 years of experience working with local real estate investors, and we’d be happy to answer your questions and consult with you so that you make the best decision possible. And remember, a successful flip is all about treating it like a business and staying informed.
