Mistakes First Time Home Flippers Make
The shows on TV make it look so easy. Find a cheap house, make a few cosmetic repairs and sell it for a huge profit. They make it look like so much fun that everyone is doing it. Homes are being flipped all over the country but as many first-time flippers are learning it isn’t as easy as it seems. Many miss basic things and either lose money or make very little. Here are a few mistakes new flippers make and how you can avoid them.
Flipping houses is a serious business and it requires a large amount of research before jumping in. Most new investors do not realize the time and money it will take to do a project. Most investors believe they can physically have the skills and knowledge to do the work themselves, but they quickly find out that is not the case. Having good judgment and making good decisions is extremely important when investing in real estate.
A very simplified explanation of house flipping is you simply want to buy the house as low as you can and sell it for as much as you can. You also want to do this as quickly as possible. Every day that goes buy costs your money especially if you are borrowing money for your project. Every day you will be paying utilities, property taxes, insurance, interest, etc.
So first you want to limit the amount of money you are risking. Buy the cheapest home you can find. Do not start out with mid to upper priced homes. There is always a market for homes in any price range after you have it ready to sell. You never want to pay more the 60% of the after repaired value (ARV) of the home. So, if a home is worth $100,000 after you have finished making repairs and it needs $20,000 worth of repairs, you will want to pay no more than $40,000 for the home. Some other investors work off of a 70% ARV, but I believe that is too high.
House flipping is just like most small businesses. It requires research, planning, time and money. It will always take more time and money than you realize so that is why I always work with a 60% ARV.
Everything related to flipping a home is expensive. Your first big expense is actually purchasing the home. Research, research, research. Pay attention to the price per square foot that similar homes are listed for or have recently sold for.
If you will be financing your flip talk to several local lenders. Explain to them what you are wanting to do. Check their rates and procedures for making draws when making repairs to the home. Go with the lender you feel the most comfortable working with not necessarily the one with the lowest interest rate.
Flipping houses is a very time-consuming project. It can easily take a couple of months to find a home, 3 or 4 months to remodel the home and then several months to get it sold. If you are trying to remodel the home and work a full-time job you will burn out very quickly. Find a good contractor to do the majority of the work. They will keep the project moving along and get it finished much quicker.
After the project is finished it takes time to market and sell the home. Then you have home inspections to pass, make any necessary repairs the home inspector finds and then finally you will get paid.
So if you are considering flipping houses make sure you know the time and risks involved. Most new flippers do not realize the money, time, knowledge and skill it takes to flip a home for profit.
Gregory S. McKinney Mineola Texas