House flipping is an increasingly popular vehicle for making large sums of money within relatively short periods of time. However, while the goal is generally to make more than you spend, many fledgling flippers wind up selling their first flips at a loss. Although this can sometimes be unavoidable, certain mistakes made by flippers can dramatically increase one’s odds of losing money. Freshman flippers looking to make a healthy profit on their first flip would do well to heed the following pointers.
Make Sure to Do Location Research
You should never proceed with any real estate deal – flip or otherwise – without first doing proper location research. While there’s no denying that a wide variety of factors go into determining a home’s true value, location is arguably the most vital. After all, there’s a reason why so many realtors and property investors live by the mantra “Location, location, location.” So, if you’re determined to avoid overpaying for your first flip, there’s no way around diving headfirst into location research.
Your research will need to entail looking at local property values and rent prices, as this will help you form a clear picture of how desirable the area is and how high housing demand is. Additionally, should you notice that properties similar to the one you’re interested in are selling for prices that are much lower than what the seller is asking, you have every right to request an explanation. Researching an area’s population size, rate of growth and median income will also help you determine how in-demand a city or township is and come up with an appropriate offer. If you’re unclear on how to tell if a real estate market is overpriced, make sure to treat relocation research with due importance.
Insist on Having the Home Inspected
Having a potential flip professionally inspected can prove beneficial in a number of ways. First off, a meticulous inspection from a certified home inspector can effectively reveal any outstanding issues a property has – even issues of which the current owner is unaware. Secondly, the results of the inspection can play a key role in helping you determine a suitable offer and budget for the flipping process.
So, upon being presented with the results of the inspection, take note of any repairs or renovations the inspector has deemed necessary and obtain estimates from relevant contractors. Once you’ve received these estimates, amend any offers you were thinking about making to reflect the collective cost of addressing essential repairs/renovations.
Additionally, if getting a prospective flip in sellable condition requires a staggering amount of work and/or financial resources, it may be best to walk away and set your sights on more manageable options. Going into a demanding flip with no prior experience is liable to cause you a tremendous amount of stress and place a terrible strain on your financial resources. Furthermore, if a seller isn’t willing to allow a home to be formally inspected, take this as a red flag and seek out safer investments.
Hire the Right Contractors
Hiring the wrong contractors can cost you quite a bit and severely eat into any profits you make from selling the completed flip. As such, you’d be wise to exercise discernment when seeking out the right people for the job and abstain from doing business with unlicensed contractors, as they lack sufficient incentive to provide honest estimates, conduct themselves in a professional manner or complete jobs they find difficult or cumbersome. Additionally, an unlicensed contractor is unlikely to provide any guarantees on their work – or honor any guarantees that they do provide.
That being the case, you should stick with contractors who are licensed, registered or certified to practice their trade in your area. Furthermore, any contractor you hire should be covered by general liability, professional liability, commercial auto, worker’s compensation, inland marine and business owner’s policy (BOP) insurance. Depending on the type of work being done, additional forms of insurance may be necessary.
Although flipping homes can be a highly profitable venture, it can be a fairly costly one, as well. While it’s often true that one must spend money to make money, a poorly-planned flip can cost you a lot more than it ever stood to make you. Fortunately, there are a number of steps fledgling flippers can take to minimize their chances of overspending on their first flips. So, if a cost-effective flip is what you’re after, make sure to carefully consider the advice offered above.