Common Mistakes You’ll Want to Avoid
Spending too much on the home
If you want to make solid returns on a flip, you have to get a bargain on the front end. That means sticking to the 70% rule, which says you should never spend more than 70% of your projected after-repair value (minus repairs) when buying a property.The 70% rule ensures you have enough buffer to complete your repairs and still make a profit — and it’s critical you abide by it, especially when you’re just starting out.
Miscalculating the repairs
Estimating your repairs is just as important as paying the right price. In fact, you can’t do one without the other.
To make sure you’re accurately estimating your repairs, you’ll first want to work with your agent to determine what projects to focus on — namely, ones that will bring the property in line with neighborhood comparables, as well as current buyer preferences.
Taking on too big a project
Aiming high is great, but in home flipping, taking on too much can come back to bite you. When you’re just starting out, keep your flips manageable and within your wheelhouse. If you’re not well-versed in electrical work or carpentry, don’t buy a turn-of-the-century fixer-upper that needs a full gutting and re-wiring. That’s just asking for costly errors and mistakes.
Not knowing your market
Understanding the local market is critical before flipping a home. You need to know what area home prices look like, what buyers are looking for, and any trends that might be going on. Having a great real estate agent on your side can help here, but you should be tuned into the market as well, as it will make you a smarter, more-informed investor.
Improving the home too much
Not all improvements are created equal, and some can even hurt you in the end. When flipping a house, you want the end product to align with comparable properties in the area. Adding crown molding, a chef’s kitchen, and other luxe features probably isn’t necessary if other homes in the neighborhood don’t have them too. In fact, it might actually make it harder to sell the home in the long run.
Overpricing the home when selling
Pricing a property right is always important — whether it’s a flip or a home you’ve lived in for decades. As much as you want to up those profits, overpricing a home will just mean more time on the market and more costs for you. It could also have buyers worried about the home’s condition. (As a listing’s days on market start to rise, the red flags go up!)