In recent years, house flipping has become an increasingly popular way for people to generate large amounts of capital within reasonably short time-frames. However, it’s important to note that flipping homes isn’t always as easy and profitable as many of the shows dedicated to the subject make it look. While it certainly is possible to profit from house flips, there are a plethora of missteps you’ll need to avoid along the way. So, if you’ll soon be tackling your first house flip, steer clear of the following blunders.
Not Calculating the Cost of Repairs/Renovations
Although every house flip requires some level of repairs and/or renovations, it’s no stretch of the imagination to say that some homes need a lot more work than others. With this in mind, make sure to carefully calculate the cost of repairs/renovations before making an offer on a potential flip. For good measure, you should also obtain contractor estimates for the various jobs in advance of signing any paperwork. Once you have these estimates, consider approaching the seller about reducing the asking price.
When considering whether to buy and hold or flip real estate, long-term profitability should feature heavily into your thinking. For example, if the collective cost of repairs/renovations for a prospective flip exceeds what you’re hoping to make from the home, this endeavor simply isn’t worth your time. Additionally, if the profit you do stand to make is relatively small, this is another indicator that you should simply walk away.
Not Having the Property Inspected
By failing to have a potential flip inspected by a seasoned professional, you’re practically setting yourself for a host of unpleasant surprises. So, before proceeding to make an offer on a prospective flip, enlist the aid of a certified home inspector. This person will be able to identify an extensive range of issues, including problems with plumbing, electricity and structural integrity. As an added bonus, the inspector’s findings may provide you with justification for requesting a reduction in asking price.
No matter how good you think you are at identifying problems with homes, odds are your skills pale in comparison to those of a certified inspector. Some issues can only be identified by experienced pros, and if this is your first flip, it’s probably safe to say that you aren’t one. Forgoing an inspection is likely to result in large problems being unearthed after repairs/renovations are well underway, which stands to throw a wrench in your budgeting and cause considerable stress all around.
Working With Unlicensed Contractors
It’s easy to see why some house flippers opt to work with unlicensed contractors. For one thing, contractor labor generally doesn’t come cheap, and unlicensed contractors often charge lower rates than their licensed counterparts. However, while the desire to save money is always understandable, giving your business to unlicensed contractors stands to lose you a lot more capital than it stands to save you.
To begin with, licensed contractors have insurance for both themselves and their employees. On the flipside, many unlicensed contractors do not, meaning you can be held liable for any injuries they incur on the job. Secondly, if an unlicensed contractor decides to simply walk away from a job or engage in other types of unprofessional behavior, they don’t run the risk of losing their license, as they never had one to begin with. Furthermore, whereas many licensed contractors will stand by their work and fix any problems at no additional cost, unlicensed contractors have no incentive not to charge for revisions that stem from their own shoddy workmanship.
Of course, this isn’t to say that you’re going to enjoy working with every licensed contractor you come across. To help ensure that any contractors you hire are well-suited to your needs, take care to seek out client reviews and testimonials online before committing to give someone your business.
Given the vast number of house flipping-based reality shows, it’s not difficult to see why so many people have come to view flipping homes as a convenient way to make money. And while there’s certainly an abundance of potentially profitable flipping opportunities, there are a number of factors that will determine how lucrative an endeavor your first flip proves to be. In the interest of ensuring that your first house flip goes as smoothly as possible, make a point of avoiding the mistakes discussed above.