In the last few decades, flipping houses has become a popular way to earn money, both as supplemental income, and as a primary occupation. Unlike many sources of income, however, there’s significant risk involved in the process. An inexperienced real estate flipper stands to suffer significant losses on their investment if they make the wrong mistakes—a fact that can frequently serve as a barrier to entry for those wanting to join the industry. The following is a list of some common mistakes that first time flippers make.
Failing to Get a Home Inspection
A quick tour through a potential property investment can reveal some of the major necessary repairs, but failing to have a professional perform a comprehensive inspection can leave you holding the bag on costly updates. This is sadly the trap that many first time investors fall into. Whether due to excitement, misplaced trust, or some other reason, many novice flippers forego a complete home inspection and find out too late that they cannot complete the necessary repairs while still turning a profit.
Investing in a Neighborhood without Doing Your Due Diligence
Is the subject property in a good neighborhood? Have any sells taken place in the neighborhood within the past few months? Is the subject property located near schools, shopping malls, and a business district? Or, are you wanting to buy property in a rural area? Will this be a residence or a rental property? What benefit will buying this property and fixing it up have for me? Perhaps you want to invest in a cabin, and renovate it, then sell it to those who love to travel. The answers to these questions will let you know if you are investing in a hot market. Experienced real estate investors understand the importance of doing their due diligence before entering a deal or getting a home under contract.
Not Having Your Funding in Place
You should have your lender in place before making offers on a house. Having a lender on-hand will give you the confidence to go after deals, and it will make things easier when working with banks on the seller’s end. You can use a hard-money lender or a private lender to fund your deals.
Not Calculating Your ARV
You must calculate your ARV (After Repaired Value) before making your offer to the property owner. The ARV will show you how much you stand to make from the deal. Here’s the After Repaired Value formula: Market Value x 70% – Repairs = After Repaired Value
Real estate investing and flipping homes in particular can be a lucrative and rewarding investment strategy, however, it pays to do your homework. Follow these tips and you’ll avoid the mistakes that turn so many other would-be investors away. And once you’re ready to sell your newly remodeled house, get in touch with a our experts to make sure you get a full return on your investment.