There are some things you want to be careful about when buying and selling houses. Even though some things might seem obvious, these simple things can really trip up people’s plans. Here are 4 mistakes to avoid when flipping properties.
Unreasonable Purchase Price
The other way of looking at this mistake is “paying too much.” Sometimes the selling price seems reasonable. But if it doesn’t fit within your budget and the numbers you have set for yourself, it doesn’t work.
You make your money in flipping on the purchase. If you pay too much for the home, you are cutting into your profits before you even get started on the improvements. In a seller’s market, this may not be as big of an issue, since the rising market value will help negate some of the additional purchase price, but paying too much from the get-go is a sure-fire way to be disappointed in the profits before the renovations even begin.
Try not to make the mistake of raising your selling price to make up for a higher purchase price, or increasing your remodel. You need to fix and sell your home based on the neighborhood and market conditions, and inflating the price usually just means you will have a longer hold time before selling the property for your original selling price.
Lack of Planning
Real estate flipping ties up a lot of money and there is risk involved. Having a back-up plan means that you have thought things through and have some sense of what you will do if things don’t work out the Number 1, ideal way.
The market could change between the time you buy the house and complete the remodels. This could be due to financial issues or political/economic issues. If you’re in an area prone to hurricanes or tornadoes, some sort of unexpected environmental event could really change the market. If all you have a plan for is selling, and you can’t sell for some reason, you could be stuck.
What is your exit strategy if your plan goes sideways? Do you unload the property for a loss? How much of a loss can you take if needed? Is there another option for the home, such as a rental? Are you prepared to hire a property manager or manage it yourself?
Not Having Sufficient Funds to Renovate
Underestimating the cost of renovations is the most common mistake to make. In the TV shows about flipping, people walk through the house and with a quick glance determine how much they think the remodel will cost.
That’s not really reality. And many times even they end up going over budget when unforeseen issues come up. Especially for the beginner flipper, the prices are higher than you might expect, you might go through more than one contractor until you find one you have a good workable relationship with, or you might try to do things yourself and make some mistakes. Make sure there’s enough padding in your budget to absorb some unexpected costs.
Not Doing Title Research Prior to Purchase
A title company ensures that the title to a piece of real estate is legitimate and free and clear to be sold. You want to be sure that once you buy a property, you are the rightful owner of it. A title company does a title search to thoroughly examine property records to make sure that the person claiming to own the property actually does in fact own it. If you don’t do title research, you might get an unexpected surprise such as buying the home and then finding out there is a lien on the home. During a title search, the research looks for outstanding mortgages, liens, judgments or unpaid taxes on the property. The liens must be paid in order for a house to have a clear title.
If you have any other questions, please get in touch with us at Gorilla Capital. We have a whole team here who does just this type of problem solving everyday. We’d love to help you!