The popularity of house flipping continues to rise, which means that the ranks of rehabbers are swelling with people of varying backgrounds, skills and resources. Those who don’t prepare properly or lack the patience to handle unexpected setbacks are going to find flipping a painful experience. However, if you can avoid these five mistakes, house flipping can be pleasurable and profitable.
1. Lack of money: Real estate development is not exactly cheap. You have to pay for the cost of acquiring property, financing the project, rehabbing and selling. You have to enhance the value of the property sufficiently to cover your costs and make an after-tax profit. Many flippers turn to hard-money loans that finance up to 70 percent of the property’s value and can be obtained in a matter of days. Real estate lenders, such as Specialty Lending Group, can help you realistically determine the money you will need, and then finance your project quickly and affordably.
2. Lack of time: Fix-and-flip projects are in a constant time squeeze. At the launch, suitable properties pop up suddenly and don’t stay on the market for long. That’s why rehabbers prefer hard-money loans with their quick turnaround. Waiting for a bank loan is hardly ever an option. Once the project is underway, it’s a race against time to finish up by the projected deadline in order to avoid extra interest costs and delayed returns on investments. Don’t even think about becoming a flipper unless you can devote the time necessary to fix up a property, have it pass inspections and selling the finished home.
3. Lack of skills: Skilled professionals, such as carpenters, electricians and plumbers, know what they are doing and can apply their experience, knowledge and skills to select a house and flip it for a profit. They understand the amount of sweat equity that will be needed to make money on the deal. If you have the skills, you can save a tidy sum by doing the work yourself. If you have to bring in a lot of specialty trades, you may end up with little or no profit. DIY rehabbers have to be handy with tools and techniques, from installing drywall to plumbing new fixtures. Realistically assess your own skills before proceeding.
4. Lack of knowledge: You need to know the right neighborhood and property to select, and the right price to pay. That means you have to research comparable properties in the neighborhood of choice and set your sites realistically. You also need to know how much rehab work is necessary, and which renovations should be skipped. Lack of knowledge can turn a fix-and-flip into a money pit.
5. Lack of patience: It takes patience to wait for the right property at the right price. Many novices rush to quickly when they buy a property or hire a contractor. Novices further rush to sell the property through an agent, but professionals do the selling themselves and pocket the sales commission. Finally, novices too often think a coat of paint and new curtains are all it takes and are impatient to cash in on their investment. Lack of patience most likely will lead to losses.
Contact SLG for information about financing your fix-and-flip strategy. Our expertise will help you avoid many of the pitfalls that novice rehabbers make.