By Kate McDonald
If you watch home renovation shows on television, you are left with the impression that anyone can earn serious cash by flipping houses. The reality TV stars make it look easy; find an old house in a good neighborhood, fix it up, and sell your newly remodeled home for hundreds of thousands of dollars. The only problem is that house flipping is not for novices. There are numerous mistakes that can be made if you don’t know what you are doing. Before you contemplate becoming a house flipper, review the following roundup of mistakes rookie flippers often make.
Thinking You Can Do It Alone
Although the idea of pocketing all your house-flipping cash is enticing, few flippers can manage an entire project on their own. Whether this is your first solo flip or you’re working with your spouse, tackling a rehabilitation project without assistance is a fool’s errand. You’re going to need sub-trades to assist you, even if you have extensive renovation experience. Time is money when it comes to flipping houses; the faster you can get your flip on the market, the sooner you’ll see the cash in your bank account. Build a list of sub-trades you can turn to before you start your project. Even if they just help you with minor fixes like bathroom caulking and lighting installations, the money you spend will be well worth the investment.
Failing to Manage Sub-Trades
Speaking of sub-trades, not managing sub-contractors is another critical mistake rookie flippers tend to make. Like a mother bear keeping an eye on her cubs, you need to manage the activities of your workers. Just because they tell you they will show up on your job site at a specific time, don’t take them at their word. Be present whenever you have sub-trades on site to ensure work is completed to your specifications and that none of your tools go missing.
Not Tracking Costs
Additional labor is just one of the expenses you need to budget for when flipping houses. Everything from unexpected foundation repairs to electrical repairs and city fees can affect your budget. Tracking costs through every step of the flip is absolutely critical. You can’t just keep expense estimates in your head and hope you come out ahead at the end of a flip. Use a mobile app like Snappii’s construction tracking tool (itunes.apple.com/app/id1064083960) on your smartphone to document each expense, and keep those expenditures in mind when you’re contemplating expensive upgrades.
Running Out of Cash
Letting your expenses get out of hand is just one issue that can cause you to run out of cash. Failing to accurately estimate your cash flow during the renovation process can cause serious problems. You need to understand the cash fluctuations that will happen when flipping a house, especially when all bills need to be paid at the same time. Before you even contemplate flipping a house, make sure you have plenty of cash reserves to last you through the entire flip (including an extended sale period post-flip).
Not Understanding Market Conditions
Another error many flippers make is failing to understand the volatility of the housing market. Just because neighborhood comparables are excellent when you start your renovation, that doesn’t mean those comps will be the same by the time your house is ready to be put on the market. Housing market corrections can happen in an instant and can be influenced by everything from newly instituted tax laws to sudden changes in the local job market. All it takes is one major employer to have layoffs in your area, and your house’s value can plummet in an instant. There’s a reason professional house flippers get in and out in a hurry; the longer you own a home, the greater the chances are of a market correction.
Knowing what not to do when house flipping is just as important as knowing what to do. Making informed decisions and understanding potential pitfalls is crucial. Will you consider the above-listed real estate tips before jumping into your next house flip?