It looks so easy on TV: Investor buys run-down house, fixes it up and sells it for a huge profit, a process commonly known as “flipping.” But actually making money flipping houses is no easy business. It can be lucrative if you know what you’re doing, but you could lose your shirt if you go in unprepared.
Here are some of the mistakes experts say flipping novices make:
Not knowing enough about the market
If you don’t know how much comparable homes sell for in a specific neighborhood, you won’t know whether the investment property you’re considering is undervalued. If it’s not undervalued, you’ll have a harder time making a decent profit. You’ll also need to know how long neighborhood properties tend to stay on the market.
Over-improving the property
Yes, updating kitchens and adding more bathrooms generally add value to a property. But you can quickly get in very deep if you start making structural changes. Paint, new carpeting and cosmetic updates to kitchens and master baths may be all you need to make a profit. And if your improvements make the home the most expensive on the block, you could have trouble selling it.
Decorating to your tastes instead of buyer tastes
You might like bold colors and avant-garde decorating, but neutral colors and choices appeal to more buyers. You can quickly spend a lot of money on designer touches that don’t add to the bottom line.
Handling too much work yourself
Many flippers overestimate their skills and underestimate how long it will take them to complete projects. Hiring skilled labor can help you complete a project on time, reducing expensive carrying costs and more than making up for what you would “save” doing it yourself.
Forgetting curb appeal
Save some of your budget for fixing up the lawn, adding some landscaping and sprucing up the home’s exterior. Curb appeal counts!
Failing to get a home inspection before buying
With an inspection, you’ll know whether you’re likely to need major repairs to the plumbing, electrical and heating and air-conditioning systems, or whether there are structural and rot problems. They’re all expensive to fix and could leave you with little money for other upgrades.
Under-budgeting
Even if the home is inspected you’re likely to run into significant unexpected expenses during any home renovation project. Leave leeway in your budget for the unexpected. And make sure you fully understand other costs you will entail, including mortgage and other loan payments, insurance, listing and closing costs.
Indecision
If you don’t know what you want to do with the property as soon as you close, or don’t have reliable contractors already lined up, you’re wasting time. And with flipping, time is money.
All the advice in the world won’t keep you from making some mistakes. But if you’re smart about your investment, realistic about your knowledge and skills and learn from your mistakes, you just might be able to make flipping profitable.
Published on June 19, 2007