There are plenty of places where a flip can go wrong. Mistakes can be made despite your best preparation and planning. With that, there are also things in a flip that can go wrong based upon decisions that can and should be avoided. After talking to tons of other investors over the past 10 plus years, I can confidently say that there are some common choices they made that did not help them when it came to success.
They wanted the get rich quick strategy
News flash, it’s not real estate. In fact, I would argue that most real estate investing is active. That means, it still requires something from you. It’s not uncommon for people to think that they can buy a couple of rental properties, self manage them, and then sit back and collect checks. This is one o f the biggest mistakes commonly made as it’s not quite that simple.
The financing was too expensive
I believe that you should get started sooner rather than later. If you are borrowing money, especially when you are just getting started, make sure you understand the terms. If the house doesn’t sell, what will happen? Using lenders can be a great strategy when you are getting started but make sure you know the “what ifs.” Don’t forget to account for the lending costs in your deal analysis too. That can make a big difference in the overall profit.
Buying in a bad location
This is the first rule in real estate and it is a rule for a reason. When you are starting out, I would suggest staying away from the locations that will be challenging for buyers. Yes, it may be a deal but the money you save may be gone because of holding costs that lasted much longer than anticipated. Until you are experienced or are able to be patient, don’t let this become one of the mistakes you make.
Letting someone else talk you into it
At the end of the day, you are financially responsible for this property. Don’t let anyone else talk you into it. That means you have to be comfortable with the location, the amount of work, and the numbers. Always make sure to include your profit, holding costs and expenses, renovations and sales costs.
Underestimating repair costs
When you are working on your budget don’t forget to include your contingency budget. Typically, this will be around 10% of your entire budget. This is a line item that is added after you have your budget established. When you are creating an initial budget, you should be overestimating by 10% until you get those numbers in writing.
Not having an emergency fund for mistakes
When you are flipping, you need to have access to money for any potential mistakes. I am not saying you need to have a big savings account, but if you need to add some additional items, you need to have a way to pay for them. Especially if there are items that are keeping the house from selling. The cost of ignoring those items will be much more significant than if you simply address them.
Real estate investing, as with many entrepreneurial types of business, can have its pitfalls, It can also have opportunities that cannot easily be found in other careers. Make sure that you are setting yourself up to be in a position of profit. Even if it may not be as much as you initially planned. The most important part of this process is the decision to move forward. Action is the only way to learn and improve.
Want to buy a property and renovate it?
I have a freebie checklist that will help you — 8 Things I look for When Purchasing a Home. Just click here to download it.
Love before and afters?
Looking to buy a house to renovate? Check out the fixer upper checklist to help you find the perfect house.
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