Flipping real estate looks easy enough. A quick 30-minute television program can give anyone the expectation that the process is easy. It is lucrative, when done properly. Many people face difficulties in this process because they make some key mistakes along the way. Knowing what to avoid when flipping properties can give you an advantage in this industry.
Not Knowing the Neighborhood Comps
One of the most common mistakes flippers make is not knowing how much they can truly sell the property for after renovations. To learn the value, careful consideration of the property, the neighborhood, and properties recently sold in the immediate area is essential. Neighborhood comps tell you how much a home is most likely to sell for based on features and current market conditions.
It's common for first time flippers to invest too much in renovations when the neighborhood comps don't support it. For example, you purchase a home for $150,000 and may expect to add $100,000 to the value of a home with a complete re-model. However, if the homes in the area don't sell for around $300,000 or more, it's not likely you'll get your top dollar with your profit factored into the sale price. Understanding area comps will:
- Help you know how much to pay for the property
- Help you determine which renovations are worthy
- Aid in helping to price the finished product
Lack of Understanding Exit Strategy Options
Another mistake many flippers make is not knowing what their options are once they've flipped the home. In many cases, you'll want to sell quickly, but what happens when it doesn't sell? You should have a backup plan. You may wish to rent out the property for a set number of months until the local real estate market improves. You may want to wholesale the property to another real estate investor. Have a secondary plan.
You Don't Have the Expert Help You Need
Flipping homes can be highly successful if you have the expertise to do it. Even if you are just starting out, you can access this information by working with the right professionals. For example, working with a hard money lender, one that offers some mentorship and advice, can help you to avoid costly mistakes. Other experts to work with include real estate attorneys and lawyers, accountants, and trusted general contractors.
When you have this team on your side and you take the time to research, you increase your chances of successfully flipping a home for the largest profit possible. You also tend to reduce the stress involved in the process.