Buying an investment property can be made to look very easy, thanks to house flipping shows, but the reality can be more difficult. You can lose money when trying to flip a house for profit if you aren’t careful.
You should treat house-flipping as a business so that you can avoid falling into problems that will eat into your profits. There are some common house flipping mistakes you need to avoid.
Perform Your Due Diligence
Researching before you decide to purchase a house is vital. If you buy in an area that isn’t popular with purchasers, you could find yourself having difficulty selling, and being forced to reduce the price. It is imperative that you purchase a home in a desirable area. You will likely have a better return on investment if the home is located in a highly desirable community. There are tips for picking the best neighborhood that includes ensuring there are desirable schools, a low crime rate, and much more.
Find out what price range homes sell for so that you don’t end up trying to sell for more than people expect to pay in the area. Learn what homebuyers in the location are looking for and create a home that will sell. Your Realtor should be able to provide guidance and perform comparative market analysis of homes that have recently sold in the area. You may be considering purchasing a home that is a fixer-upper to get a better price on a home in a desirable area. If you are flipping the home, then this is a recommended consideration. There are home renovations that add value and are a good return on investment.
Is the type of house you are looking to buy popular in the area? Are there good schools nearby? Are there amenities and stores within a reasonable distance? These are factors that buyers will be looking at, so you should as well if you want to sell the property quickly. A home that is walkable is highly desirable as homeowners want to take advantage of nearby conveniences.
Do Your Calculations
Before you begin the renovations on the home, you have to understand how much you can spend to still make the profit you expect. You should have found a property in the right area, at the right price, to come out ahead. Keep in mind that you will be paying real estate commission on both sides, and this needs to be factored into the equation.
Your real estate agent should be able to give you an idea of the likely after repair value of the home. The ARV gives you the starting point from which you can deduct your purchase, renovation, staging, and closing costs. This should leave you a profit of typically 10 to 20 percent. If you don’t see a profit in the numbers, you’ll need to scale back your remodeling costs.
Relying on the Contractor Too Much
Your contractor is unlikely to also be a designer. While they can give you advice on the construction of the home, you shouldn’t rely on them for the final design of the property. Be sure to do your research when you are hiring a contractor. A general contractor should be licensed. Perform your due diligence on your contractor and talk to their past clients and verify their references. The last thing you want is to make mistakes during the remodeling process.Mistakes to Avoid When Flipping a Home | Avoid Relying on a ContractorClick To Tweet
If you aren’t confident in the design of the home yourself, you are better off getting a professional to help. If you have the budget for an architect or designer so much the better. Otherwise, your real estate agent might be able to offer advice, or you can use a home stager to improve the appearance of the property. Remember those first impressions are important when a home buyer first views the property.
Don’t begin a renovation without knowing if you need permits to continue. Be sure to check with the city or county about building requirements and understand what part of the remodeling project will require permits. It does cost money to obtain permits. However, you will have a more sellable product if the home you have purchased has had the remodeling completed with permits.
Your contractor might assure you that it is fine to begin the job without approval, but this can end in trouble that will cost you more in the long run. If your contractor suggests working without a permit, it may be better to find a new contractor. Do your own research as to what permits are required in the area the home is situated. If a home is having remodeling completed without permits, and a city inspector sees it, or it is reported, the project can be red-tagged or shut down. Then you will HAVE to obtain permits to complete the project.
When a buyer is buying a home, they can also view the permit history in the city or online. A buyer will be able to determine if there are recent permits on the remodeling project of the home.
Setting the Price
Your initial research of the area should have shown you what buyers expect to pay. A common mistake is to overprice the home, leaving it unsold on the market for a long time. Even though the home will look “brand new” you may think that you can justify an inflated price. Your Realtor should guide you and help make adjustments on the price based upon the improvements in the home.
The higher the home is priced above the market value, the fewer potential buyers there will be for the home. If you can correctly price the home from the start, you will get more interest from buyers and reduce the time you have to wait to sell. Ideally, a home that just gets listed on the MLS will receive multiple showings right away and if the home is priced correctly, you should start receiving offers within the first week. A home that is overpriced yields very few showings and no offers.
Staging the Home
When you have done all the hard work of renovations, failing to stage the property is missing an opportunity. Staging could make the difference between you getting the price you want for your investment property, or it stays on the market for longer than necessary. Photography of a home that is staged is beneficial. The photos will be appealing because the home is staged. Buyers will be able to differentiate rooms with staging. The first place a home buyer will view the home is online and ensuring you have stellar photography will result in buyers wanting to view the home in person.
Staging should impress buyers from the moment they step inside, making it easier for them to fall in love with the home. It is a part of the flipping process that is easy to miss out, but it is something that you need to make room for in your budget. There is tremendous value in staging your investment property.
If you are house flipping, you need to take the right steps to avoid the mistakes that will lose you money. A planned approach will allow you to steer clear of the pitfalls and quickly sell your investment for a healthy profit. When you are flipping a house, you will want to keep costs to a minimum to ensure that you make a maximum profit. Keep in mind the timeline as well, as you will have carrying costs and construction costs.
About the Author
Top Newport Beach CA Realtor, Sharon Paxson has written the real estate article “Mistakes to Avoid When Flipping a House”. With experience since 2005 representing buyers and sellers with their real estate transactions, we welcome the opportunity to meet you and share our expertise to guide you through the home buying or selling process.