Home Flipping 101: 4 Common Mistakes You Should Avoid

Last Updated: 

May 31, 2023

Home flipping looks easy. You buy a house, make some fixes, put it on the market using a company like Finlay brewer, and make profits. According to ATTOM Data Solution, home flipping has increased over the years while returns continue to drop to record lowest. This indicates that the road to real estate riches is not all about the “sold” signs. Many would-be real estate magnates overlook the basics of home flipping, ending up making the most common mistakes over and over again. So what are the most common home flipping mistakes? And how can you avoid them?

Key Takeaways on Flipping Homes; Mistakes to Avoid:

  1. Overspending on a Home: The first common mistake is spending too much on the initial purchase of a home, which can lead to losses. To avoid this, follow the 70% rule, meaning don't spend more than 70% of the estimated post-repair value of the property. This provides a buffer for repairs while ensuring a good return on investment.
  2. Not Having Enough Money: Under-budgeting is a major mistake in real estate. Before starting, calculate how much it would cost to flip a house and make sure you have the necessary funds. Effective budgeting and cost planning are crucial for profitable returns.
  3. Underestimating Repairs and Other Costs: Many people underestimate the cost of repairs and other expenses, which can eat into profit margins. To avoid this, inspect the property thoroughly to understand the extent of necessary repairs and consider cost-effective repair options.
  4. Lack of an Exit Strategy: Failing to have an exit strategy can expose investors to significant market risks. Consider various exit strategies like lease options, wholesaling properties to other investors, and renting. Having a backup plan and a benchmark for when to implement it can protect your profit margins.
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Overspending on a Home

If you want to make solid returns on investments, you should ensure you get a bargain on the front end. So, you need to make sure you do proper market research first (for example, get informed on the cost of selling a property in Spain if this is your end goal). However, most people fail in their first attempt by spending too much on a home and ending up making losses.

To avoid this mistake, ensure you stick to the 70% rule, which means not spending more than 70% of your projected estimated after-repair value on a property. The 70% home flipping rule ensures that you have an adequate buffer to do all the repairs and still make a considerable return on investment. Also, make sure to adhere to self-directed IRA rules so that you’re able to make a profitable deal while complying with the law.

Not Having Enough Money

The number one mistake a real estate investor can make is not having enough money. You should always have a budget and stick to it. Accordingly, before getting started, you should evaluate how much it would cost to flip a house and confirm that you have the required amount of money for the project. In other words, your returns depend on effective budgeting and cost planning.

Underestimating Repairs and Other Costs

Underestimating repairs and other expenses can cost you in the long run. Excess expenses can add up, making you sell at a value less than what you’ve spent on renovation. To determine if the deal is worthwhile, you need to factor in a comprehensive expenses list.

To avoid this mistake, ensure you inspect the property you want to buy to understand the extent of repairs you need. It could be wise to have a surveyor look around and determine any important changes that might be needed, such as the installation of seamless gutters to stop leaks and clogging around your home's exterior.

Accordingly, consider the most economical repair options such as 24 Hour AC Repair to minimise expenses.

Lack of an Exit Strategy

Most real estate newbies fail for the lack of an exit strategy. If you do not have at least one exit strategy, you expose yourself to more significant market risks than you can imagine. An exit strategy should include lease options, property wholesaling to other investors, renting, and many more. A plan is never enough without a backup plan.

To avoid this mistake:

  • Consider all possible exit strategies before investing in the property. Before buying the house to flip, ensure you have an exit strategy if you do not get a buyer. If you do not find an exit strategy, move to another less risky property.
  • Set a benchmark to understand when it is time to implement the exit strategy. You should know when to implement the exit strategy at any stage of the sale process before your profit margins become too narrow.

The Bottom Line

Diana Olick stresses the fact that home flipping is surging while returns decline. This is mainly owed to overlooked mistakes in the real estate industry. If you want to start a business in 2021, especially in the real estate industry, you should consider these common home flipping mistakes and how to avoid them.

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