Flipping a house can be an effective way to generate a large amount of income in a relatively short span of time. Whether you’re flipping a house to sell or turn into a rental property, this venture stands to make you quite a profit. Unfortunately, house flips can go completely off the rails in no time flat, especially when inexperienced flippers are at the helm. So, if you’ll soon be attempting your first flip, the following pointers can help you complete the job in a timely and budget-conscious manner.
Failing to Budget Properly
The foremost goal of most house flippers is making more from selling homes than they spend on flipping them. After all, given how much work goes into the average house flip, there’s no point in even bothering if you don’t stand to make a healthy profit. With this in mind, you’d do well to making budgeting one of your foremost priorities.
So, when exploring prospective flips, make sure to weigh how much you stand to make from the house against how much fixing it up is likely to cost. Needless to say, if the latter is more than the former, you should set your sights on another property. Furthermore, when budgeting, keep in mind that you’re bound to go a little over-budget at some point in the flipping process, so take care to set aside emergency funds for unforeseen expenses. Fledgling house flippers can benefit from sticking to the 70 percent rule – i.e., never paying more than 70 percent of a home’s ARV (after repaired value) for a property they intend to flip.
Failing to Research a Home’s Location
When putting together your flipping a house checklist, “research” should be near the very top. Before committing to purchase a home, it’s strongly advised that you do some research into its location. When carrying out your research, you’ll need to pay special attention to home values in the area. Depending on your findings, a potential flip may not prove worth your time or money. The last thing you want to do is invest significant manpower and financial resources into a home that won’t fetch the desired asking price.
Working with Undependable Contractors
Doing business with the wrong contractors can turn even the easiest flip into an endless headache. So, when shopping around for dependable contractors, make sure to seek out reviews from past clients. Although every contractor is practically guaranteed to have an unfavorable review or two floating around the Internet, it’s generally a good idea to avoid contractors whose client feedback is overwhelmingly negative.
Furthermore, you should only give your business to contractors who are fully licensed and bonded. If a contractor’s website doesn’t provide this information, make sure to inquire about their licensing status before committing to hire them. If they aren’t licensed or outright refuse to answer the question, simply take your business elsewhere. At the end of the day, if a contractor isn’t willing to put forth the time and effort to obtain a license from the state, how much time and effort can you reasonably expect them to put into your job?
Some people opt to work with unlicensed contractors in an effort to save money. While it’s true that unlicensed contractors often charge lower fees than their licensed contemporaries, they’re more likely to walk away from jobs and go over-budget. Whereas licensed contractors run the risk of losing their licenses if their business practices are less-than-honest, unlicensed contractors don’t have to worry about such consequences and therefore have less incentive to oblige. Additionally, if an unlicensed contractor is injured on the job, you may find yourself having to pay for their medical expenses, assuming you aren’t outright sued. Conversely, licensed contractors have workers’ compensation for both themselves and any employees they’ll have working on your job.
It’s easy to see why so many people have taken to flipping homes. After all, making a substantial profit within a fairly small time-frame is something that all financially-conscious individuals aspire to. However, while there’s no dying that house flipping can be a lucrative venture, not every flip goes off without a hitch. In some cases, poor choices combined with general inexperience result in flippers experiencing tremendous stress and losing enormous sums of money. So, in the interest of helping your first house flip go as smoothly as possible, take care to avoid the mistakes discussed above.