If you ever watched a tv show on house flipping you may be inspired to try it yourself – house flipping is not as easy as they make it seem on HGTV. If you understand how to start in the house flipping industry it’s important to understand what mistakes not to make. Let’s face it – mistakes almost always happen when you are first starting a business. So, if you get ahead of the curve and understand what not to do – you will most likely avoid them.
House flipping is a growing industry. In a recent article shared by The Mootly “In 2017, just 5.7% of all home sales were flips. By the first quarter of 2022, that share jumped to 9.6%.” That is a huge jump and goes to show the growing interest in flipping. In the first quarter of 2022 alone 114,706 homes were flipped. With that being said, it’s important to understand how to get into the business without making major mistakes and potentially losing earnings.
5 Mistakes That Can Make House Flipping a Flop
- Not researching the area – investing in the wrong house. This is one of the most common mistakes when one is first starting out in the business and probably one of the most important things to be aware of. As you flip more you will learn which houses are worth it and which are not. If the house needs a new roof, it most likely is not worth it for you to purchase as that is a high-cost repair. Hiring a trusted contractor can help you determine any major issues before purchasing the home.
- Designing the home with you in mind – You purchased a home in the right neighborhood and now you are ready to start the updates. When doing so, it is important to remember that you will not be living in the home. Keep in mind what current trends are in – choose pieces that are trendy but also timeless, look to increase storage, and try to stay away from wall colors that are hard to paint over. This will make selling the home easier and real estate agents will be happy as well.
- Not giving yourself enough time. When starting the home flipping process be realistic about how much time it will take. In many instances it may take longer to find the house you’re looking for. Then, there are repairs which you can not always control. Give yourself extra wiggle room and prepare yourself for some unexpected things to come up.
- Overpaying for the house you will improve. This one is huge and overpaying for a house can easily keep you from making a profit. Look for homes under market value and shop around before buying. This is where the 70 rule comes into play. For an investment property, a good rule of thumb is to spend no more than 70% of the homes after repair value minus the costs of renovating. This should leave you with about a 30% profit margin.
- Underestimating repair cost – Carefully budget the amount you need for repairs prior to you purchasing the home. If you are new to the business talk to a contractor and always add a little extra spend for unexpected issues.
If you are thinking of getting into the house flipping business be sure to understand the ins and outs. Don’t underestimate the time and money it takes initially. It is easy to think it’s an easy job if you simply watch was is done on HGTV but do your due diligence and you will be heading in the right direction.