Discover 3 huge mistakes that ruin profits on house flips. Too many new investors commit these errors and lose time and money! If you want to successfully flip real estate to make big profits you absolutely must avoid these 3 mistakes!
Mistake #1: Over-Paying
The first big mistake in house flips is overpaying. It's often said in real estate that you make your money when you buy, not when you sell. Of course, that means you have to buy right.
Where You Buy:
Buying right begins with where you buy. When buying house flips, most investors consider the location of the property, but you need to focus specifically on desirability, which you'll see reflected in the inventory turnover. Equally important is buying where there's plenty of demand. That can be in the city, the suburbs, or sometimes even in semi rural areas. You're also best buying without a lot of competition, which means off MLS properties direct from the seller. At Freedom Mentor we specialize in teaching our apprentices where to find these gems.
What You Buy:
The next step to making sure you don't overpay is to focus on what you're buying. And that means taking the time to complete all the required due diligence:
- Thorough title search
- Property inspections
- Digging into the right comps
You need to become an expert on that specific property, and you can't afford to miss anything. For instance, if the property is overbuilt, that extra square footage is great, but you have to account for the reality that you'll never get the average price per square foot when you sell. And as you go through all that detailed due diligence, you also need to keep in mind why you're buying
Why You Buy:
Of course your goal is to turn a big profit. However, an eagerness to get in the game can sometimes lead to a confirmation bias, resulting in a loss of objectivity. Sometimes, especially when you're new, you just get worn out with all the diligence and rush the process. Or it could be that you have the funds and you find yourself barreling to closing because "you have a good feeling about this one". Just remember, the market doesn't care about your feelings, and if you pay too much, your first deal just may be your last.
How You Buy:
Finally, it's very important how you buy. Using hard money is expensive, but using your own cash and credit comes with a price as well. We at Freedom Mentor love to buy with creative terms, and the ease and protection terms can provide is critical to ensuring you don't overpay for the property. In fact, we often buy creatively to pay as little as possible and optimize our position in the deal.
Mistake #2: Over-Renovating
The next big mistake that will ruin your profits on house flips is over-renovating. Part of the creativity that benefits you as a creative real estate investor can also find its way into the rehab process. For some, it's an opportunity to explore design ideas and transform a property. However, this is where you can get way too involved and easily lose sight of your real goals.
Know Your Market:
The first key to avoid over renovating is to know your market. Forget the drama you've seen on TV and all the upgrades you've always wanted at your own place. You have to understand your local market, all the comps and trends, and from those build a solid scope of work so you can obtain realistic detail bids. As you get to those details, the next key is getting to know your buyer.
Know Your Buyer:
You want to be clear on what buyers are expecting at the given price range. Specifically, making sure finishes and features are in line with the neighborhood. Missing those items in your scope and budget can lead you to either an inferior product or likely spending more than you had planned. And often finding yourself over budget forces you to look for savings elsewhere and the last thing you want to cut corners on are finishes. After all, they're the first things buyers will see.
Know Where You Add Value:
The final key to avoiding the mistake of over renovating is knowing where to add value. You do your diligence before you buy to be clear on the numbers and opportunity. Then you structure the deal and all your plans start to finish to ensure you have the bids and the budget to be successful. The last thing you want to do is run short of funds and find yourself trying to hire budget contractors that may do inferior work. Or worse, get desperate and try saving money by doing the work yourself. That always costs you more and will ruin your profits.
Mistake #3: Over-Pricing
The final big mistake in house flips is overpricing your property when you list it for sale. This is typically a function of the first two mistakes:
- By paying too much for the property
- Then spending too much on renovating
- You find yourself trying to make up for it by listing for too much
In real estate, you can't afford to get emotionally attached to any deal. You must remain objective. This is where you can waste serious time and money!
- Overpricing a property will bring far fewer showings, and commensurate offers below list may have you turning offers down.
- Your days on market build up, which creates what we call negative social proof, which further works against you.
- More time on market, means more holding costs, especially if you're paying for expensive hard money on top of your taxes, your insurance, utilities, lawn care, HOA.
- And when you finally realize you have to drop the price, now you've shown the market your motivation which may further affect your contract negotiations.
Buy Right, Renovate Right, Sell Right
Please, always remember this: the market doesn't care whether you make a profit. It doesn't care how much you've poured your heart and soul and savings into the property. The market doesn't care what your goals are this year, or that you plan to make $20,000, or even that you're just hoping to break even. So don't make the mistake of overpricing your property. Avoid that position altogether by not overpaying and not over renovating, so that you're positioned right when you're ready to sell and not tempted to overprice. It's all about pricing correctly to maximize your time and make big profits on house flips.
Every Successful House Flipper Has a Mentor
Creative real estate investing is the best business there is, but there are lots of mistakes that will ruin your profits. As mentors, we've walked countless people through this process to help them avoid these 3 mistakes. If you're looking for the opportunity to transform your life and build a successful future, apply to our mentorship program: Freedom Mentor Apprentice Program.
Questions or comments? Text FREEDOM to 305-315-8030.
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