The following is a guest post from Brandon Turner at Biggerpockets.com. If you would like to submit a guest post, please contact me.
I want to make a confession.
I’ve made some pretty big mistakes in my life.
But who hasn’t? However, it’s learning from those mistakes and helping others avoid them that makes those mistakes worth making. So consider this post my atonement!
You see, I’ve flipped about a dozen homes over the past few years – some with success and some with … well… a lot of “education”. It’s not that I lost any money, but some of the small profits I made early on were not worth the headache or the time spent. I know this is the case with many house flippers, so in an effort to help those looking to get into this (potentially lucrative, but often risky) field, I’ve compiled a list of my top ten mistakes I’ve made when flipping houses.
1.) Doing all the Work Myself
The first several flips were remodeled nearly 100% by myself and my wife, during the weekends and evenings. We painted, we cleaned, we carpeted, we installed, we wept. It was a long flip, and while I learned a TON about the rehab process, looking back I should have been sure to include the cost of hiring contractors into the deal and worked harder at being “the manager” and not so much “the labor.”
2.) Buying the Wrong Property Characteristics
There is no “magic” property size, layout, or ratio of bedrooms vs. bathrooms to make a flip sell automatically. However, there are better and worse property characteristics that work better in YOUR area. Talk to local real estate agents to determine what kind of house sells better in your area. Do 3 bedroom, 2 baths sell the best? (They usually do?) How about condos? Or homes with garages? Find out what the buyers in your area want to buy – and flip that house.
3.) Not Noticing the Neighbors
The condition of the neighbor’s house can make or break a deal. I once bought a small two bedroom house (mistake, see above!) that was the ugliest house on the street – by far. It was disgusting. It also shared a driveway with a neighbor, which we didn’t think was such a problem. However, once the flip was completed – the house next door was now the ugliest house on the street, and made selling much more difficult. It didn’t look so bad when it was next to the ugly house, but next to the remodeled house it suddenly became an eyesore.
4.) Underestimating the Time
By far, one of the most common mistakes made by nearly every house flipper is the estimate on how long it takes to remodel a house. I’ve been guilty of this most of my flips, as the logic of how long a project should take never seems to jive with the reality. For example, if it takes 3 days to paint a house and 2 days to carpet – logically that should take 5 days. Nope! It will take 2 weeks! Eventually, I was able to shave off time and make my flips fit within the allotted time, but it’s not easy and requires systems and an efficient manager.
5.) Underestimating the Budget
Another very common mistake made by most house flippers at the beginning is underestimating the cost of the rehab. Again – logic doesn’t always match with reality, and the little things add up so quickly! A good rule of thumb for new house flippers: always double your budget and double your timeline. If it still works when analyzing the property: move forward. If not – find a better deal.
6.) Making it “Too Nice”
TV has wrecked us. We watch those flipping shows or remodeling shows on HGTV and want our flips to look just like that. I’ve been guilty of this on several projects, where I simply made the house “too nice.” Sure, the buyers appreciated it and it may have sold quicker than other properties, but the extra costs spent were never recouped. The best way to determine how nice a property should be is to look at the comparable sales. What are people buying? What do your local buyers want in a house? Then, seek to go just one step above that. If your local buyers only buy houses with granite counters – then you must put in granite or another stone counter. However, if laminate counters are sufficient, don’t upgrade to granite and stainless steel unless the competition is.
7.) Paying too Much
This one is easy to do, because of the emotions that go into buying a property. It’s so easy to simply look at the house and imagine the potential, but forget the actual deal. I’ve done it – it’s not good. Stick to your guns, trust your numbers. Math never lies. Just be sure that your estimates are on target!
8.) Hiring the Wrong Contractors
You know that one friend of yours who keeps hooking up with that jerk boyfriend, breaking up, hooking back up, breaking up, over and over and over? You want to just scream at them “stop it! Get away from them!” This is my story with using the wrong contractors. After I quit doing all the work myself, I began to find others to do the labor for me. However, I went about it the wrong way. Over and over, on many of my flips I wanted to help out my contracting friends so I used them to remodel the properties. The only problem: they weren’t very good contractors! Choosing a contractor that could actually do a great job, within budget, and on time is vital to the success of your company.
9.) Not Having a Back-Up Plan
Flipping a house and selling it quickly for a lot of profit is the goal. However, if that is the only plan you’ve got a problem. I learned this lesson early on in my flipping, as I found myself with a market that was quickly falling and I couldn’t sell. What was I to do? All I had planned for was selling!? After a lot of discussion and debate, I ended up renting the home out and refinancing into a 30 year fixed mortgage. This experience taught me two things:
- Rentals are an awesome way to build wealth (the tenant is still paying down my mortgage each month.)
- You HAVE to have a back-up plan (multiple ones!)
Clearly, I’ve made a lot of mistakes. However, as I said earlier – those mistakes just might be totally worth it if I can help others avoid the same. It’s my hope that if you decide to flip a house in the future, or engage in any other kind of similar business, that you can shorten your learning curve by avoiding the mistakes I’ve made.
Let me know if you have any questions or comments on this stuff by leaving me a comment below!
Brandon Turner (G+) is the senior editor at BiggerPockets.com, the real estate investing social network as well as the co-host to the popular BiggerPockets Podcast. He enjoys writing epically in-depth articles, like The Ultimate Beginner’s Guide to Real Estate Investing or the Ultimate Guide to Tenant Screening, which you can read here.
Image Credit: Freedigitalphotos.net
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