Flipping: 4 Avoidable Mistakes to Remember

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The potentially high-profit world of house flipping typically gets ambitious entrepreneurs going on the offensive. House-flipping profits reportedly topped an average of $67,000 in 2020, proving that the ambitious can certainly earn a good living in the industry.

But the other side of the coin doesn’t always trend in the news or social media. Inexperience and/or a lack of caution can sometimes cause otherwise savvy business people to make critical mistakes. If you are considering buying, renovating and selling homes for profit, it may be in your best interest to play a little defense. These rank among the most common mistakes that could cost you money.

1: Overpaying for a Property Cannot Be Undone

It’s not unusual for novice house-flippers to begin their property search in familiar places. These often include popular real estate apps and search engines. But only a few inexpensive homes in need of renovations appear. What happens next stands among the biggest mistakes. An eager house flipper buys the cheapest listed property.

Although it may make sense at the moment to select from inexpensive inventory, these houses are not often priced for resale. While some homeowners are looking for possible kindred spirits who want to take on a low-priced home and invest some DIY equity, don’t jump on the property just yet. Experienced professionals won’t buy unless the property cost and total rehab tally 70% or less of the expected resale price. The "70 Percent Rule" is a wise philosophy to adopt in the flipping business.

2: Not Having the Rehab Infrastructure in Place

Securing the right property makes up only part of the battle. To remodel it into a valuable and marketable asset, you will need the tools and people to get the job done. It’s not unusual for newly minted house flippers to try to nail down the equipment and necessary subcontractors after the fact. Lack of preparedness often results in the project taking too long to complete. Every day you own a fixer-upper is a day that money goes out the door. It’s essential to have the equipment and people in place before buying.

3: Beginning a Project Without Adequate Funding

People who enter the fix-and-flip world should probably have some experience in the construction sector, especially since new construction and rehab projects routinely run over budget.

Common reasons for overspending include increases in materials or labor costs. Sometimes unexpected structural or abatement issues arise that add to the job. Other times, subcontractors find themselves choosing between your project and another that will pay more money, in which case you may have to negotiate a new deal to keep your project on track. Anticipate that your contractors may add an additional 20% to their original estimate as a buffer for incidentals that may arise. 

4: Failure to Create an Exit Strategy

The business model involves buying low, renovating the home and selling it quickly for a profit. What happens when the property does not move? That’s a caveat that too many house flippers usually forget to consider.

Like any business proposition, there needs to be a fallback position that doesn’t involve a lender exercising a lien on the property or draining your resources. It may be worthwhile to set up lease-to-own options or converting the short-term fix-and-flip financing into a long-term mortgage.

4 Simple Ways to Save on Your Dream Home

Image by Paul Brennan from Pixabay

Building a new home is more affordable than many people realize, and it’s sometimes even cheaper to build new than to buy previously owned. Some tactics can make what’s already an affordable home solution even more affordable.

If you’re looking to build but are on a budget, here are four ways to save money on new home construction.

1. Build Smaller

Building smaller provides obvious cost-saving measures, as fewer materials and less time are needed to construct the house. You’ll also likely save on future property taxes if you build a smaller home, since property assessments often factor in a home’s size.

While building smaller leaves you with less square footage, the amount of useable space that’s sacrificed can often be kept minimal. A small home that’s well-designed for your family’s lifestyle and needs can actually provide more useable space than a larger home that’s not as thoughtfully laid out. A practical floor plan and custom built-in features can maximize a small home’s space.

2. Forgo the Upgrades

Custom-built homes come with many optional upgrades, and you’ll undoubtedly want some of them. Only get those upgrades that you truly need and fall within your budget. Any you don’t have the funds for when building can be delayed until a future date.

Remember, upgrades are not mandatory. If you find yourself questioning which ones would be right for you, don’t add any for the time being. Spending some time in your home as-is gives you time to experience the house and then decide what upgrades would be most beneficial for you.

3. Finalize Everything Up Front

Before breaking ground, check and confirm all of your chosen options. You should be entirely confident in the decisions, because changing them once construction starts usually increases costs. You’ll save money overall if you take the time necessary to make all of your chosen decisions prior to actually starting work on the job site.

4. Ask About Finishing Certain Aspects

Many aspects of new home construction require skill and expertise, and your home builder’s team should complete all such parts of the building process. Toward the end of construction, however, there are some finishing touches that aren’t as specialized. You may be able to save money on construction costs if you complete some of these final items yourself.

Talk with your home builder about what you might be able to do on your own and ask them how much you could save by doing the work yourself. Whether this is permitted varies from builder to builder, but it can help when builders allow. Landscaping, interior painting and appliance installations are all good items to consider, depending on your skill set, available time and personal interest. A builder may know of other finishing items you can do, too.