Fixing and flipping houses seems like a pretty straightforward process from the outside. All you really have to do is find a distressed property, put time and money into renovating it, and then sell or rent it out. However, it's not that simple, in fact, it's a much more complicated process than most people think. There are many things that can go wrong; however, there are three things that can turn a renovation into a nightmare. Successful flippers understand this risk, and work diligently to avoid these scenarios at all cost.
The Wrong Property
When you're looking at an investment property, you'll likely consider price and condition first. A high priced home in need of major renovations is not as appealing as a lower priced home that needs fewer repairs, most of the time. Look beyond these factors and take a good look at the neighborhood and surrounding communities as well. Pay attention to indicators that the area is on a downswing, such as a high rate of unemployment, decreased population or an increase in homes for sale. Although the deal may be appealing, it's going to be more difficult to sell, or rent in those conditions. Likewise, in an area that is experiencing growth and healthy real estate sales, your chances of selling or renting increase.
The Wrong Contractor
In most cases, flippers don't do the majority of the work in their investment properties. Instead, they hire licensed, insured contractors that are versed in local building codes. Unfortunately, not all contractors are created equal, and you must choose very carefully. Before you sign an agreement for renovations with any contractor, do your due diligence. Get a list of current and past customers that you can contact for a reference. Contact the local Better Business Bureau to find out if there have been any complaints filed. Verify that the contractor's license and insurance are current and in good standing. Finally, get everything in writing from the initial estimate through to the completion of the project.
An Inadequate Budget
One thing that you can always count on when renovating a property is that you'll spend more than you initially think. While your initial inspections, and those of your contractor, may reveal little more than cosmetic repairs, that will likely change. For example, tearing out and replacing bathroom fixtures may lead to the discovery of a major plumbing problem. If you've only budgeted for the initial work, your budget will be strained by even a small issue and completely blown by a larger problem. It's far better to heavily over-estimate your remodeling costs than it is to underestimate them. With practice, you'll eventually learn to come in under budget with every property, and increase your profits.
Fixing and flipping homes can be an exciting way to make a living. It's also a risky endeavor that can cost you dearly in terms of time and money if you're not careful. If you're really serious about making money investing in properties, you have to avoid the three mistakes I just discussed. Choose your properties wisely, team up with a reputable contractor and make sure you have an adequate budget. Please feel free to contact us if you have questions about flipping properties, or real estate investing in general, we would love to speak to you.