5 More Mistakes That Will Torpedo Your Fix-and-Flip
This post is part 2 of an original 5 Mistakes That Will Torpedo Your Fix-and-Flip article. If you haven’t already, we recommend you also check out this post in addition to the advice below to learn even more great tips about successfully completing a fix-and-flip project.
1. Renovating without the buyer in mind
The renovations you do should be centered around your buyer’s needs, not yours. If you are flipping a house in an area with good schools, your buyers will most likely be families with young children. You need to make sure that you focus your remodeling budget on creating a space that is warm, open, and child-friendly. A flip in a retirement area will have other requirements like easy accessibility from the garage and so on.
Also make sure that you design the space with a neutral color scheme in mind. Not everyone who walks in through that door is going to be wild about bright green walls in the living room.
2. Misjudging time required
Flipping houses needs more time than most people realize. You have to find contractors who are best suited for the job, come up with a schedule, get the repairs done, verify that the repairs have been completed as per specifications, find a real estate agent to help stage and list the home, and then finally, sell it. An average flip takes anywhere between three to four months, assuming that there were no delays at any time during the process.
But that hardly happens in reality. Sometimes, your contractors are unable to complete the job on time because they are working on multiple projects at the same time or they come across unexpected problems like bad plumbing, which was not taken into consideration during the initial estimation.
Depending on the size and nature of the project, every day of delay can end up costing you hundreds to thousands of dollars in carrying and financing costs.
3. Using too much of your personal capital
Another common mistake that can destroy your fix-and-flip is investing too much of your personal finances into the project. For the novice home flipper, it’s a huge risk that can carry disastrous consequences.
Instead, apply for a hard money loan that can help you pull off the project without delving into your life savings. That way, you’re risk is shared should the rug be pulled out from under your feet if something goes wrong.
You have to set a price for your house within the neighborhood’s general price range, no matter how much you love the work you’ve done or how much pain you had to go through to get it to its current condition. While you can definitely point out all the updates you’ve made, the buyers are not going to know or care about how bad the kitchen was before you got to it – what they see is the final product and that is what they are going to pay for. Overpricing the house is only going to leave the property on the market for a longer time, reducing your final profit.
5. Not having a good backup plan
You bought the house with the intention of flipping it and selling it for a good profit. But what happens if the market suddenly changes or your plan doesn’t work out due to some unforeseen reason? Do you have a backup plan or a good exit strategy?
One option is to rent or lease the house to cover mortgage costs until you can sell the house or refinance into a more traditional loan. You can also wholesale the property to another investor, though this may not give you the returns you had initially calculated.