House flipping is a type of investment strategy that involves renovating a house and adding value so that it can be resold for a higher price. These renovations can involve refurbishing key areas inside the house, doing extensive work on the exterior, or even re-building from the ground up. While flipping can be a lucrative strategy, there are risks involved. Below are 5 mistakes to avoid when flipping a house.
Mistake #1: Overspending or Underestimating Costs
Many developers make the first mistake to overspend on the renovations or underestimate how much it will cost. Poor budget forecasting or lack of planning can lead to debts and an inability to make a profit from flipping the home.
When going this route, it’s important to plan for all expenses, including permits, renovation costs, materials, labor, and even unexpected contingencies. If you’re applying for hard money loans to finance the project, it’s important to have all your costs laid out beforehand. In some ways, it’s best to over-budget so that you’re not left in the red at the end of it.
Mistake #2: Hiring Poor-Quality Workers
Nobody wants to hire poor-quality contractors to do a job. While it can be difficult to know the quality of the work ahead of time, make sure you spend time vetting the right people. Don’t just hire the first company you come across, even if it is tempting to cut corners to reduce costs.
To boost the home’s resale value, you’ll need to make sure that the renovations are of a high standard. Only work with licensed professionals who have a proven history of solid work. You may even ask if they have samples of previous projects before you set up a contract.
Mistake #3: Miscalculating the Time
Misjudging the time that it takes to renovate the home is another mistake that can be avoided. Before you start renovating, put together a timeline and a plan for any potential contingencies. Time costs money, so you’ll want to make sure you’re covered financially if there are delays.
If you’re up to the wire timewise because of financial commitments, you’ll want to plan carefully and be sure that you can deal with setbacks that might potentially delay the project for several weeks or months. As part of your plan, you should factor in the renovation time as well as how long it might take to get it on the market and sell it.
Mistake #4: Not Knowing Your Market
As with any business, if you don’t know your market, you are doomed to fail. Before you set out and refurbish a house to sell, you’ll want to know the market. This includes understanding what buyers in the selling bracket will want, what local house prices are like, and any other trends that might affect the sale of your flipped home. If you don’t know what the market is like and what buyers are expecting, you could end up with a home that takes forever to sell.
Mistake #5: Selling at the Wrong Price
Mis-pricing a flipped home is another mistake that people make. Again, this comes down to knowing your market and what the area prices are. Make sure you don’t over or under-sell the home; otherwise, you may be the last one standing when it comes to selling your property. The way you price the home will also affect how potential buyers see the quality of the build.
