Home flipping looks easy. You buy a house, make some fixes, put it on the market, 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?
Overspending on a Home
If you want to make solid returns on investments, you should ensure you get a bargain on the front end. 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.
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. Accordingly, consider the most economical repair options such as 24 Hour AC Repair to minimize 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.