I recently saw a post on Bigger Pockets from a house flipper in Canada. She claims to have purchased a property for close to $200,000 and spent around $75,000 on renovations and then sold the property for over $500,000 within just a few months.
When people throw around figures like that it is no wonder that some people are ready to jump into house flipping without carefully considering the possible pitfalls.
In this article, we consider 5 of the most common mistakes that house flippers make that could prevent you from reaching your financial goals. We will also tell you how to avoid them so that you will have a much better chance of hitting the jackpot.
Mistake #1 – Choosing the Wrong Contractor
Choosing the wrong contractor can completely derail your investing plan. When it comes to the length of time that a project will take, you will be completely at the mercy of your chosen contractor. Your chosen contractor is also the one whose quality of work will determine how well the renovations turn out and, as a direct consequence, how likely you are to be able to sell for the price you wanted.
With so much at stake, the decision you make about which contractor to hire will be one of your most important. You need to carefully weigh their qualifications and suitability for the task.
Make sure that you are fully satisfied that the proposed contractor has the necessary experience and training to complete the renovations on time and on budget. Ask to see the results of other projects.
To find out if they are really trustworthy do a thorough online search, check out any reviews and testimonials. You can even ask for references from previous customers.
If everything checks out and you decide to work with them, make sure you put everything down in a contract so that there can be no doubt as to what is expected from the collaboration.
Mistake #2 – Not Planning for Potential Problems
Almost every property has some hidden surprises that will reveal themselves during the project. Staying on budget is the ideal to aim for, but all too often, unexpected expenses send can hit you where it hurts.
Here are a couple of examples:
If you have invested in an older property, there is a good chance that you will find some extra work is needed to bring things like wiring, plumbing, etc. up to code.
If you are pulling up flooring or opening up walls, you may find pest problems, water damage or rot.
So how can you protect yourself?
Although the contractor that you have hired should provide a clear quote, add 10–20% on top of that cost to allow for the unexpected expenses that might arise.
Mistake #3 – Over-Improving a Property
When you sell, you “never get 100 cents on the dollar, no matter what the improvement,” says Erik H. Reisner, managing partner of Mad River Valley Real Estate in Vermont. “It may increase the value of the property, but not dollar for dollar.”
“Just because a house has new countertops and a brand-new master bath doesn’t mean you’ve made more square footage in your house,” says Pat Vredevoogd Combs, past president of the National Association of Realtors and vice president of Coldwell Banker AJS Schmidt in Grand Rapids, Michigan. “Compared to houses down the street with the same amount of square footage,” the prices will be basically the same, she says.
The fact is that if the property you are trying to sell is more expensive than other homes in the neighborhood or worse, much more expensive, then you will have a hard time selling.
Buyers will be comparing the price of your property with other similar-sized homes in the area and they don’t want to pay more.
Choose a property that has a good structure than can be improved cosmetically to add value without making massive changes.
Mistake #4 – Under-Improving a Property
Successful house flippers like to focus mainly on cosmetic improvements such as floors, paint, landscaping, kitchen, bathroom and other minor things so as not to fall into the trap of over-improving but they also focus on improvements and renovations to the point where they can get the full value out of the property for the area.
There is no need to go overboard with the fixtures and finishing but it’s good to go a little above and beyond the general quality in the area. This way you minimize any downtime on the market.
For example, landscaping is a small thing that makes a huge difference. On one project a house flipper spent $20,000 on landscaping and it made a $50,000 difference to the property value.
Mistake #5 – Designing the House to Your Personal Taste
If you decide to renovate your investment property according to your personal taste you might be making a costly mistake. One of the worst things you can do is to make renovations that aren’t supported by the local market, in other words, your personal taste may not match up with the taste of your potential buyer.
If your investment property has a lo customization that does not appeal to the majority of buyers you may find that the offers you receive will be lower because the buyer is factoring in the cost of changing things around to remove that quirky feature.
Before you get carried away with that impulsive aspect of your remodel plan, take some time to find out what specific types of home renovations work in the area and will genuinely add value to the property.
If you don’t go in with your eyes open then your house flip can go wrong but if you do your research carefully, including acting on the advice in this article, then your projects can give you the financial reward that you are looking for.
Once you are ready to sell your property and cash in you can advertise it on your website. If you do not already have an online presence you are excluding a ton of motivated sellers and cash buyers that are searching the web for an offer like yours.
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