What should you not do when flipping a house? Flipping houses can be a great way to make quick money and provide a buyer with the home of their dreams. However, a few oversights can turn this exciting venture into a financial nightmare. Here are 7 things NOT to do when flipping a house.
Forget to factor in non-renovation related expenses
It’s a common mistake among newer house flippers to only consider the purchase price and the renovation costs, however, there are other very significant expenses that need to be considered before signing that purchase agreement to acquire your next flipper. Some of these expenses include: financing costs, holding costs, and closing costs.
Unless you’re paying cash for the purchase and renovation, you’re going to pay a fee to borrow money. This expense needs to be included in your budget.
You need to consider the amount of time that will lapse between when you take ownership of the property, and when you can realistically sell the property.
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If you’ve got some experience flipping houses, you can likely discern the average time it will take to complete your rehab. In addition to that, you need to consider how long the property will sit on the market before its sold. A real estate agent can provide you with an average time on market.
The longer you hold a property, the more you will pay in utilities, property taxes, homeowners’ insurance, interest payments on debt, among other potential holding costs.
Closing costs, as the name suggests, are fees you pay at closing. Real estate commissions, title fees, and any prepaid expenses you’ve agreed to cover for the buyer, are a few examples of costs you can expect to pay at closing.
Put the house up for sale in the winter
In most markets, winter is slowest time of year for real estate. This does pose an advantage for buyers because they can usually capitalize on this slower season by picking up properties for lower prices than if they were to buy them during the peak season.
This doesn’t fare so well for the house flipper who is looking for a quick sale and maximum profits, however. If you can help it, try to buy in the winter, and have your house ready to go on the market in the Spring or Summer.
Not create a renovation budget
If you don’t create a renovation budget, you’re setting yourself up for failure. There are many renovation budget spreadsheets online that can be downloaded for free. Having a budget in place will help keep you accountable to your spending and keep you informed along the way as to how well your project is staying within budget.
Mispricing Your Flipper
Getting the price wrong when you put your house up for sale can lead to the house being underpriced or overpriced. An underpriced home might get the house sold sooner, but you could be leaving a lot of profit on the table.
On the other hand, an overpriced home can lead to the house sitting on the market for lengthy periods of time, and you racking up additional holding costs. Furthermore, the longer your house sits vacant the greater the risk you have for break ins and theft.
Not getting professional photos taken
Spend the $100 or so to get professional real estate photos taken. Photos alone won’t sell your house, but professional photos can increase the number of showings. Photos are the first impression most potential buyers will have with your property. It’s a small expense, and worth the investment, in my opinion. Take a look at the two photos below. Which one do you think was taken with an iPhone?