Avoid These 5 Mistakes When Fixing And Flipping Investment Properties

Fixing and flipping properties is often seen as a more complex investment strategy unsuitable for newcomers; due to the nature of the construction and refurbishment work that goes into fixing a property. However, due to the potential for high returns in a relatively shorter period, it can appear enticing for real estate investors to consider this strategy as a way to generate profits quickly. Reality TV shows that glamorize the world of home flipping have also sparked interest in this form of real estate investment. While being able to flip properties for profit quickly is possible, many factors go into ensuring the deal is profitable, so investors must tread with care. Even experienced property flippers have fumbled from time to time, with their mistakes causing sizable dents in their bank accounts.

To help you keep an eye out for mistakes you’d want to avoid in a fix and flip investment, let us take a look at some of the most common ones.

1. Underestimating the scope

The most common mistake a real estate investor can make is to underestimate the amount of money, time, and effort involved in finding, buying, fixing, and selling a property for a profit. Often, unforeseen expenses arise – such as needing to replace the entire wiring instead of just a light bulb, or work planned for two days taking two weeks. Even slight deviations from a plan can add up, eating away at the profit margin.

2. Underestimating the value of market research

You may get carried away with what looks like a steal, and you may rush to close and avoid doing the due diligence in the process. As with any other real estate investment, clear, thorough market research can be all the difference between being stuck with a property that won’t sell and having a large deposit appearing in your bank account from a successful flip.

Looking into the neighborhood, recent real estate trends, local economy, and zoning laws can help you differentiate between a good deal and an overpriced property in a declining market.

3. Overestimating your abilities

While even seasoned flippers should work with professionals as required, if you are a novice, it is an absolute must to work with professionals from the start. From carrying out property assessments before purchase, to conducting the renovations and repairs, working with experienced, qualified contractors can save you lots of money, time, and grief in the long run. Always work with reputed contractors to define the scope of work, budget the costs, and finalize a timeline that both of you should stick to strictly. Professionals are more likely to be able to deal with unforeseen issues that may crop up as well.

4. Underestimating the non-material costs

Apart from the purchase and renovation costs, less apparent costs need to be factored into the project plan as well. Financing costs, property taxes, building permits, and utilities are some of the expenses that investors often overlook when budgeting the investment and pricing for profit. Speaking to seasoned realtors and contractors, looking up city property guidelines, and educating yourself more on the business aspect of fixing and flipping properties can help you understand the costs involved.

5. Overestimating the selling price

You may incorrectly set an ambitious selling price that doesn’t conform to the market and set yourself up for disappointment. Even a 15% deviation from the market value could end up eating into your profit margins such that you may end up making a loss. Before investing in a property, always have an exit strategy in mind, or ideally a few of them, to ensure you can overcome unexpected outcomes. Researching historical selling prices and current going rates for similar properties in the area, consulting with experienced local real estate agents, and managing your costs are ways to ensure you achieve your profit goal

As you can see, all the most common mistakes boil down to the inaccurate estimations and assumptions that investors make when they enter this space. With every project, whether you are a rookie investor or a seasoned veteran, you must check your assumptions at the door and go into each project with no presumptions. As such, to maximize your chances of turning a healthy profit, always do the following:

• Thorough research on the neighborhood, similar properties in the area, local economy, and real estate trends
• When you’ve identified an attractive fixer-upper that you believe you can flip for a profit – get a property assessment done by a professional
• Correctly scope the work while being conservative with the refurbishment goals
• Get a professional estimation for the rehab work  
• Consider all possible expenses, both direct and not
• Keep a safety buffer for your costs in case of unforeseen incidents
• Prepare a feasibility report to identify whether this will be a profitable venture, as well as clearly defining your exit strategies
• Purchase the property and get to work on the rehab
• Do the bare minimum to allow your property to reach the expected value
• Aggressively market the property via multiple platforms and avenues
• Profit!

Conclusion

You should have more clarity about what to look out for when planning a fix and flip project. You should secure funding to get started if you find a property that works within your feasibility study. That’s where our team at RE Investor News can help. Our experienced specialists are happy to help you figure out the best funding opportunity for you and help you secure said financing, so don’t hesitate to get in touch!

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