When you’re flipping a house, time is money. And you don’t have time to make a lot of rookie mistakes.
That’s what Steve Cederquist learned when he first began renovating and flipping properties in 1994.
“I bought a house with a bad foundation and lost $30,000 on the deal,” says Cederquist, a general contractor who’s now a veteran house flipper and president of Cornerstone Property Services in Huntington Beach, CA. “I didn’t think I’d have to do much to a 1,200-square-foot house. But it cost me a ton of money.”
No house flipper is born wise. So we talked to several pros who outlined mistakes newbie flippers often make. Avoid these pitfalls to ensure your profits come out on top.
Mistake No. 1: Not getting a home inspection
This one’s a biggie. Even if you plan on making major changes to the house, you still need an inspection. Of course, if you’re going to tear down the whole thing, there’s no need for one. But house flipping usually involves making cosmetic changes—maybe opening a wall or remodeling a bathroom. It’s a makeover—not a complete rebuild. So you need to get it checked out before you buy.
“Never buy as is,” Cederquist says. “I can’t tell you the number of times people lose everything because they don’t do the safest thing: getting a home inspection.”
Inspections can turn up all kinds of problems. Some issues, like cabinet doors that don’t close properly, you won’t care about if you’re planning to rip and replace the kitchen anyway. Others, such as a cracked foundation, can cost you dearly.
At the very least, an inspection can identify problems you can use to bargain down the price. Every dollar counts toward your bottom line; whatever money you save on the purchase price will help you turn a profit when you flip.
Mistake No. 2: Overestimating your renovation skills
Every dollar saved on labor is a dollar you earn when you flip a house. But all too often flippers think they’re better plumbers, drywall hangers, and carpenters than they really are.
“This ends up being a major drain of time and resources, because you must redo work and spend twice the amount of money fixing it,” says Allen Shayanfekr, co-founder and CEO of Sharestates, an online crowdfunding platform for real estate financing.
There’s a simple answer to your DIY delusions of grandeur, Shayanfekr says: “Consult an expert prior to undertaking any major project.”
And make sure to ask for an estimate in writing. That way you’ll know what you’ll have to spend to make the house attractive to buyers.
Mistake No. 3: Underestimating total costs
Inexperienced flippers often add the purchase price to renovation costs and figure the sum is their break-even point. If only.
But the true cost of your flipping adventure involves much more. Think: state and federal taxes on profits, real estate commissions, title searches, transfer taxes, inspection and appraisal costs, and a bunch of other fees that show up at closing when you buy, and again when you sell your property.
Do yourself a favor and thoroughly research the total cost of your project (don’t forget permit fees, which can be substantial) and then add a cushion—10% to 15% is customary.
“Be prepared to pay over your expected fees when coming to the closing table,” Shayanfekr says. “Better safe than sorry.”
Mistake No. 4: Being a jerk
Even if you’re determined to do this on your own—you’re a whiz at mitering crown molding, after all—successful flipping requires some level of interaction with others. You’ll need to build a trusted team of craftsmen, suppliers, lenders, and real estate professionals that you can call on time after time.
Not only do you need to find people you can depend on to get the job done quickly and on budget, but your teammates must also be able to trust you to treat them with respect, pay on time, and not make their lives a living hell by changing your mind repeatedly.
“People want to do business with others they like and trust,” says Cody Sperber, who has flipped more than 1,000 properties in 15 years and has started a mentoring program called Clever Investor, based in Tempe, AZ. “So many deals have materialized because I listened and was empathetic. Not because I was shrewd and smart.”
Mistake No. 5: Jumping the gun
Some flippers put a “For Sale” sign on the property before completing renovations, hoping a buyer will be able to envision how gorgeous the house ultimately will be.
That’s a big mistake, says Bill Golden, an Atlanta-area real estate agent.
“Many people think they can get a jump on things by getting folks interested before it’s done, causing multiple issues,” Golden says. “Many people don’t have vision and can’t really see how things will look once they’re done. Also, missing molding, trim, and other details that may seem minor to you can reflect poorly on what the buyer perceives the quality of the renovation to be.”
Don’t list the project until it’s move-in ready. It will save time in the long run, because potential buyers won’t nag you about missing finishes you already plan to include.
Mistake No. 6: Designing a flip like you’re going to live there
Flipper rule of thumb: Never fall in love with a property.
Unlike your own home—where you’ll raise a family, build memories, and make modifications that suit your needs—flips are short-term projects that must appeal to the widest possible market.
When you design your flip, take yourself out of it. You may love aubergine, but stick to whites and neutrals when you pick paint colors. Research design trends, walk through open houses of new construction, and survey real estate agents to find out what’s selling and what’s not. If you don’t create an attractive yet blank canvas, your flip may languish on the market—costing you money with each painful, passing day.
“Don’t get attached to the house, because you’re not going to live there,” Cederquist says. “Keep it generic, what’s popular. Then stick to a design and budget.”
courtesy of realtor.com