Investing in real estate can be a lucrative way to generate passive income or replace your day job altogether. Flipping houses can be a good way to get started. But it’s not something you want to jump into without doing your homework. If you’re about to embark on your first house flip, there are some critical errors that you’ll need to avoid.
Check out our investment calculator.
1. Focusing on the Wrong Upgrades
The idea behind flipping homes is simple. You buy a cheap property that needs fixing up, give it a facelift and recover the cost of the renovations and then some by selling it. One stumbling block for first-time house flippers, however, is that it’s easy to lose sight of what really needs the most attention.
For example, if your vision involves creating a deluxe master suite complete with a tricked out bathroom, it might not make sense to leave the kitchen looking like something out of a Leave It to Beaver episode. It’s important to know which upgrade is going to add the most value when it’s time to relist the property. If you want buyers to be wowed when they walk in the door, an up-to-date, modern kitchen will create the kind of first impression you’re looking for.
2. Being Unrealistic About Budgeting
If you’ve ever watched any house-flipping reality shows that profile new flippers, you’ll notice that the ones who have problems almost always have the same thing in common. When it comes to finances, they don’t approach their project budgets realistically.
Before you start snapping up properties, it’s a good idea to research them carefully to determine how much it’s going to cost to complete renovations. It’s also wise to estimate what the home might sell for after you’ve finished your renovations. Having a professional contractor come in and evaluate the home may require some cash up front, but it can pay off and help you keep your budget on track.
Try out our budget calculator.
3. Misreading the Market
House flipping is only successful when the home you’re renovating becomes one that someone else wants to buy. If you don’t study the market before plunking down the money for a property, you could set yourself up for failure when it’s time to sell.
It’s best to take a look at what similar homes are selling for in the area where your property is located. It doesn’t hurt to check out a few places in person to see what kind of upgrades they have and how the upgrades compare to the kind of renovations you want to undertake. That way, you can get a better idea of how likely it is that you’ll recoup your investment.
4. Working Without a Team
While you may think you can flip a house on your own, tackling this kind of project solo is probably not a good idea. Before you get started, consider reaching out to people who can help you navigate the process. That includes a real estate agent who can help you find the right home, a contractor who can oversee the project and an accountant who can help you with the logistics of keeping up with your budget and reporting profits on your taxes.
See property taxes for your property.
House flipping can be a lot of fun and there’s nothing like pocketing a big chunk of change your first time out. Being realistic about your goals, fully understanding what it costs to successfully execute a flip and surrounding yourself with the right guiding influences can keep your flip from being a flop.
Photo credit: ©iStock.com/gpointstudio, ©iStock.com/wragg, ©iStock.com/Susan Chiang