Have you ever watched an HGTV episode about a fix-and-flip project and been compelled to try your hand at home improvement? While the fix-and-flip plan is a genuine and rewarding real estate investment strategy with a high potential return on investment, executing a successful flip is far more complex and difficult than the T.V. show. manufacturers want you to believe. The experts at JS Lenders, based on their decades of expertise counseling investors in the fix-and-flip market, offer the following five frequent mistakes rookie house flippers make to help you get your fix-and-flip career off on the right foot. You won’t have to deal with the same problems anymore.
Avoiding Fix and Flip Mistake #1: Choosing the Wrong Property
Selecting a property that corresponds with your budget and investment goals is one of the most crucial first decisions you must make in any fix-and-flip project. You’ll learn what elements should affect your decision-making process as you gain more expertise in the house flipping market. Some properties, for example, will require modifications that are simply too costly or substantial. It’ll be anything but a quick flip because you’re beginning from scratch. Be skeptical of properties with foundation difficulties, leaky roofs, or similar huge, expensive repair requirements as a general rule. Scheduling a formal inspection of the structure prior to purchasing it is a good investment that might save you a lot of money (and headaches) in the long run.
Pitfall #2 to Avoid When Fixing and Flipping: Buying at the Wrong Price Point
Paying too much for a possible restoration project up front is a sure-fire method to set yourself up for failure and prevent you from coming out of the transaction with a good profit margin. That is why seasoned house flippers do thorough searches for homes selling for significantly less than the median market value. Foreclosure auctions are an excellent place to look for exceptional bargains. Distressed properties are frequently listed at auctions for a fraction of their market value. Also, be patient when looking for a home; acting too quickly could result in you missing out on a possibly more profitable flip.
The 70 percent rule, which states that investors should only offer up to 70% of a home’s after-repair-value (ARV) minus restoration costs, is a popular rule of thumb. If you follow this strategy, you should be able to make a 30% profit on your flips. The end result should be a respectable profit margin with considerable wiggle room in case of unexpected expenses. The last thing you want is to have to pay lender fees or closing costs at the last minute.
Avoid Pitfall #3: Inaccurate Budget Calculations by Fixing and Flipping
The cost of completing the repairs that new fix-and-flip investors want to make is frequently underestimated. When you acquire an investment property that needs a lot of work but your money account runs dry halfway through the project, it’s a terrible sensation. You’re stuck between a rock and a hard place, with a house that’s nearly impossible to resell or even rent out until you can come up with the funds to complete the repairs you started. To avoid this, make sure you calculate the exact amount you’ll need to finish all of the repairs you’re planning—enlist the services of a reputable contractor who can provide you with quotes. Also, always budget for a little extra to cover unexpected costs; they happen more frequently than HGTV admits.
Fix and Flip Pitfall #4: Inaccurate Timeline of Completion
Trying to stick to a precise deadline for a fix-and-flip job almost always results in irritation and a loss of earnings. Make a realistic timeline for yourself that you can stick to. This reduces the amount of tension you experience during the renovation process. From start to finish, the average flip takes about six months. Keep in mind that some flips can take a long time. The length of time it takes to finish depends on how thorough the planned repairs are. You’ll need an active resell market once you’ve completed all of the work. Avoid the frantic pace and probable blunders that come with missed deadlines. Give yourself plenty of time to complete a high-quality project—your future self will thank you!
Fix and Flip Pitfall #5: Doing Everything Yourself
We’re not implying that you won’t be able to complete some of the renovations on your own. With a sledgehammer, almost anyone can break down some walls. However, for more skill-intensive repairs and installations, such as electrical wiring or floor installation, hiring a vetted contractor to execute the work accurately and on time is usually in your best interest. This will save any extra delays and costs associated with having to redo anything you attempted but failed to achieve on your own.
Take the Following Step
For almost three decades, JS Lenders has been a major nationwide lender, providing straightforward, effective finance options to many real estate investors. We understand the specific hurdles that fix-and-flip investment entails, and we can provide you with vital advice and unmatched customer care to guarantee you’re off to a good start. Please contact us immediately to learn more about how we can assist you in achieving all of your financial objectives!