Common Mistakes To Avoid When Flipping A House
There is a lot of risk involved in house flipping, especially if you’re new to the process. While exciting and potentially profitable, it’s important to remember that house flipping is not just a hobby and needs to be taken seriously.
Keep these in mind and avoid the 7 pitfalls and you’ll be on your way to success.
1. Underestimating cost and overestimating ROI
It is extremely important to always have an in-depth understanding of the costs associated with flipping a house and to ensure that you have a strong sense of the potential costs to come.
Remember that it’s not as simple as getting money back in return for the money spent. Return on investment depends on multiple factors, including creating a detailed budget, forecasting and cost planning. There is a huge amount of skill involved in a successful flipping, but contrary to what most people believe, it’s less about having an eye for potential and more about taking the time to do in-depth financial forecasting.
Not having the correct financial forecasts could easily lead to overspending and over-capitalising.
2. Not having a set business plan in place
Having a strategic plan in place can help you evaluate the risk, reward and possible return on investment. Bare in mind that transaction costs can take a huge chunk out of your profits so do not start a project unless the figures stack up.
House flipping is a serious business, and just like any other business, requires a well-formulated plan. If you’ve never been involved in property flipping before, it’s well worth talking to a professional who can give you advice or help you with parts of strategic planning that you may not have any prior experience with.
3. Not fully understanding the market
Be sure you’ve looked into the risks of the market, market cycles, current demand and what other flippers are doing to make sure that it’s the right time to get involved. Flipping in a declining market can be risky even if you don’t make any mistakes.
Unsurprisingly, the ability to read the market is crucial! The more research you do, the better you’ll be able to evaluate the opportunities and risks that you will be faced with. Again, it’s always worth involving a property professional who knows the area inside and out to get a better idea of the market.
4. Not consulting a local property expert
Even a seasoned house flipper knows that they should speak to a property expert who specialises in the area in question. As mentioned, knowing the market inside-out is crucial,and that includes local information and buying trends. Speaking to the right professional - one who has years of experience in the specific area you plan to get involved in - can save you a lot of time and money.
5. Overdoing the DIY
Know what you don’t know. Often it works out cheaper and adds more value to bring in a specialist, rather than trying to do a larger job by yourself. A complicated job could end up costing you more and delaying your project, so always bring in a specialist when in doubt.
6. Not having an exit strategy
House flipping is a tricky business and, if you do it multiple times, you’re likely to run into a problematic flip somewhere along the line.
Having an exit strategy to ensure that you’re not left with a house on your hands for far too long is important. Long-standing utility and maintenance costs add up quickly and can be a massive burden. Sometimes it’s better to cut your losses and not be afraid to walk away. Be sure to have the timing worked out before starting your project.
7. Not being patient
Flipping a house does not happen overnight, so ensure you’ve budgeted enough to go the distance and followed each step meticulously. Don’t rush; get the right advice and do your research. Flipping property always comes with a certain amount of risk, and rushing the process can increase it.
If getting into house flipping is something you’re interested in, Speaking to a property professional to help you get started on the right leg is always well worth it, considering the amount of money you’re putting in, when making these decisions, great advice is your biggest asset.