Many people believe that flipping houses is an easy peasy, surefire way to make money. Although it can be a brilliant way to make money - if you know what you're doing - there are many mistakes that people make when trying to flip a house, overlooking the basics of real estate and losing time and money in the mean time. Learn more about the five mistakes you need to avoid when flipping a house by reading our guide.
1. Not Having Funds Available It's true that you can buy a house and flip a house without putting a lot of money down and usually, you do this with a hard money loan, or by using the money that has been put down by your buyer. But you need to have those funds in place before you get started - before you even start looking at houses to flip. You need to know exactly how much money you need to put down, how much money you might need to spend on the rehab, how much money you'll need to spend on legal fees, construction fees, consultation fees, and even if you don't have that money in your bank account, you need to have it in place, or have a loan agreed in principle before you get started. If you don't things could fall through very quickly if you fail to secure the right funds at the right time - so get it all sorted before you make the offer.
2. Not Having Enough Time Some people go into rehabbing and flipping houses as a bit of a hobby - something that they can do on the side, that they can do on the weekends, and that they can make tons of money from. Although you can flip houses as a hobby, there's one thing that you really need to keep in mind: the longer you keep the house - and the longer you have to pay the bills on it - the more money you'll lose. You really need to invest a lot of time into flipping houses - things like inspections, rehabs, arranging meetings with construction teams, meeting with buyers, arranging open houses and working with real estate agents all take a lot of time and if you don't schedule in that time, you won't sell the house as quickly as you'd like, which means that you probably won't make the profit that you want.
3. Not Having the Right Skillset Although anyone and everyone can buy a house and then sell that house, you do need certain skills and attributes in order to flip houses successfully. There's a reason why plumbers, builders and construction workers flip houses on the side - they know all of the ins and outs of what they need to do to build a house. How to inspect and re-wire the house, how to fix broken pipes, how to re-plaster a wall. Although you don't need to know all of those individual things - after all, you can hire people for that, but you do have to know how to find the right people as well as how to organize and orchestrate all of those individual workers and agencies to get all of the work done. You also need to know how to sell the house, how to choose the right real estate agent and how to keep a cool head should everything start going a little bit wrong. Organizational skills are a must, and it's also really important that you know how to budget and how to sort out your finances. If you don't, you could find things going very wrong very quickly. If you don't have the skills, admit that you don't have the skills and then get someone else to do the job for you - hire a project manager and they'll ensure that everything runs smoothly. You'll have to pay them a set fee, but it could be well worth your time if it means that you can work whilst someone else is sorting out your house. Another thing to keep in mind: you'll need to have a contingency in your budget of at least 30% of the overall approximate budget. If you don't spend it, yay: you get another 30% to spend on furniture or to put straight into your next property. But if you need it - if an unexpected job comes up - at least you'll have that money there to pay for it instead of it eating up the money that you'd set aside for windows, or for tiling.
4. Not Picking the Right House Not all houses can be flipped. You need to look for something that's in the right location, in the right neighborhood, with the right number of bedrooms and bathrooms, that doesn't need to be overhauled too much - the more you spend, after all, the smaller your profit. If you don't find the right house in exactly the right spot, you'll find it extremely tricky to sell it on. You also need to make sure that you buy the house below market value, and that whatever you end up spending on it still puts your overall spend at less than the approximate current market value so that you still make a profit.
5. Not Having Enough Patience It's important when you go into the business of flipping houses that you have plenty of patience. It's not an easy job, by any means, and sometimes you'll have a house on your books for far longer than you'd like. Sometimes, you'll think you have a buyer, only for them to back out at the very last minute. Sometimes, someone will tell you that they love the house, make all the right noises, make you think that they're going to buy - only to back out at the very last minute. You'll need patience, and a lot of it, to succeed at flipping houses.