For new real estate investors, finding a home and flipping it is a great way to break into real estate and grow a portfolio that puts them on the path towards financial freedom. However, no matter how easy HGTV makes flipping houses seem, it’s not quite as simple as adding a fresh coat of paint and walking away with huge profits. As any experienced flipper would tell you, flipping houses requires knowledge, determination, and skill to be successful.
To help potential flippers make smart investments and avoid any financial pitfalls, we’ll look at 3 mistakes that can turn a flip into a flop and how investors can correct them before they start their next project.
• Lack of Knowledge
• Poor Planning
• A Bad Team
Let’s dive in.
Lack of Knowledge
One of the biggest mistakes an investor can make on a fix-and-flip project is not having enough knowledge of the deal. Jumping into an investment project without running the numbers and understanding the market is a recipe for failure.
Real estate investing is all about the numbers. No matter how great an investment property may seem, the numbers must always be the deciding factor. Your end goal as an investor is to come out ahead and profit from your investment. In a previous post, we explored the 70% rule of ARV and how that is a key component in determining the overall value and potential of a deal. Having these a good understanding of these numbers is a great start towards finding a profitable flip.
It’s also important to have a good understanding of the market the property is in to determine if there is potential for success. A few key items an investor should know are:
• What are some of the recent trends in the market?
• Is the job market attracting new residents?
• Has there been a period of growth that suggests a need for housing?
• How long are homes on the market?
Every investor should be knowledgeable of the market they intend to invest in. Having a good understanding of the market and the ability to run numbers on the property is a great first step towards a successful flip.
Poor Planning
The second mistake that can turn a flip into a flop is poor planning. Having a plan means setting a budget and timeline and having all the ducks in a row. Each phase of the project should be detailed and have the proper budget allocated. From materials needed (paint, light fixtures, countertops, etc.) to working with a contractor, this should all be planned before the contract is signed on a fix-and-flip project. The budget should also be calculated to include money for any unforeseen costs that would otherwise delay the project.
It’s also important to create a timeline that moves the project along quickly. The longer a fix-and-flip is held, the less profit there is at the backend. Having a timeline in place before starting the work gets started will help the project move smoothly and can also help an investor prepare for any unexpected issues that could occur throughout the project. Conversely, not having a timeline before starting can lead to confusion and delays and eat away at profits.
A Bad Team
The final mistake that can kill a fix-and-flip project is having a bad team. Whether it’s a lender that isn’t fully capitalized and lacks the infrastructure to manage a loan from start to finish, a bad contractor, or a listing agent that is unable to get the property sold, these mistakes can severely impact the success of a fix-and-flip investment.
We’ve highlighted what to look for on a fix-and-flip loan, but here’s an overview of what a reliable lender has to offer:
• Low Down Payment
• Multiple Exit Strategy Options
• In-House Team to Handle the Loan
• Fast and Simple Underwriting
These are greats signs for any investor that is looking for reliable fix-and-flip financing from a hard money lender.
A contractor is another critical member of an investors team that can be the difference between a successful flip or a flop. Investors should read reviews, get bids, and consult with previous clients to help them make a smart choice with their contractor. Nothing is worse than having a great property and getting burned by a bad, unreliable contractor.
Finally, it’s important to have a great listing agent that can get the property sold quickly. Switching agents and having a flip sit on the market for weeks as profits dwindle is a thorn in every investor’s side.
Each of these are key components to every real estate investor’s team. A great lending partner, contractor, and listing agent can add fuel to an investor’s fire and help them grow their investing business and achieve financial freedom.
Recap
We covered a lot in this article! Each of these three mistakes are completely avoidable by investing time up-front before a fix-and-flip project even begins.
Here’s a recap of what we covered and how avoiding each of these mistakes can help investors make smart, successful investments.
• Real estate investing is all about the numbers, know them!
• Learn about the market the property is in and make smart decisions
• Have a sound plan in-place before even purchasing the property
• Set a budget and timeline and work to keep it on track
• Build a reliable team of lenders, contractors, and listing agents
About Easy Street Capital
Easy Street Capital is a relationship-based investment real estate lender with loan programs for every borrower. Whether you are buying a property to fix up, building new construction, or generating cash flow from rental units, Easy Street Capital has the solution.
As a fully discretionary lender we have the ability to customize a loan specifically to meet your individual needs. We look forward to assisting you with your next project.
Contact us today to get started on your next real estate project!
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