House flipping was more popular in 2022 than ever. In such a competitive market, house flipping mistakes can be especially costly.
Last year, homes flipped by investors represented 8.4 percent of all U.S. home sales. That report—by property and real estate data provider ATTOM—also revealed gross profit margins on those flips were the lowest since 2008. These trends suggest that there’s little room for error to succeed in the business of house flipping.
This article examines 10 common house flipping mistakes to avoid to help you invest successfully in real estate.
Not doing enough research
House flipping is not a get-rich-quick scheme. It takes careful planning and research. This includes analyzing the local real estate market. Make sure there is demand for the type of property you want to flip.
You also have to know what similar properties in the neighborhood are selling for. This helps ensure that you can develop a reliable budget based on the estimated sale price.
Also be aware of the property’s proximity to potentially unappealing features, such as train tracks, a sewage treatment plant, or a slaughterhouse.
You also need to carefully vet potential contractors. In addition to online reviews, ask for referrals from other flippers or real estate professionals.
Not securing financing
The property you want to buy is below market value, which is why it’s a good flip. But that’s also why conventional mortgage companies will likely refuse to loan you the money. Banks and credit unions like a sure thing, which a fixer-upper is generally not.
Hard money lenders like Black Brook Capital want to partner with investors for fixer-upper rehabs. In fact, we base our lending decision on the after-repair value of the property instead of the investor’s financial history. And we understand that time is money—especially in house flipping—so our loans close in two weeks or less. Learn more about our loan process.
Underestimating costs
One of the biggest house flipping mistakes that rookies and veterans alike make is underestimating the costs involved.
Unfortunately, running out of money is an all-too-common problem. From unexpected repair costs to permit fees, there are many expenses that people may overlook when flipping a property.
But there are steps you can take to accurately estimate your costs before you even begin your flip.
- Create a detailed budget that accounts for every expense, no matter how small. By taking the time to plan and budget properly, you’ll be one step closer to a successful flip.
- Work with experienced contractors who can give you accurate quotes and help you avoid costly surprises.
- Follow the 70 percent rule to buy a home you can afford. The purchase price of the home plus the cost of renovations should only amount to 70% or less of your estimated sale price.
Not securing permits
Before you do any rehabbing, make sure to find out which permits you will need for your upgrades. This could save you the time and money of doing a job twice. It could also prevent an unwelcome visit from a municipal code enforcement officer.
Enlist the help of a real estate professional or someone who’s flipped houses before. They will know what permits are needed and can help you start the application process before you need them.
Not scheduling inspections
Inspections are essential for a variety of reasons. An appraisal may reveal foundation or structural issues which could cost you more than what’s being fixed. This can make selling the home much harder than other homes in its class. Without this step in the process, you won’t know about this additional expense until you start renovations.
Skimping on professional help
One of the biggest mistakes you can make is attempting to flip a home all on your own. An experienced DIYer may be able to complete a wide variety of renovation projects to help keep the costs down. But it’s important to remember that you are still carrying the cost of the home during this period. So you need to balance your timeline with your budget to decide which projects you can handle and which jobs you should hire professionals to tackle.
It’s also important to note that some renovations need to be completed by licensed professionals to be considered safe and to receive permits for the work. Having licensed electricians and plumbers who can complete infrastructure upgrades and repairs is integral to a successful flip.
Check your local regulations to find out if you or contractors need to be licensed in these fields to make electrical or plumbing upgrades to the home.
Qualified contractors can ensure your property’s structural integrity. But your flip may also benefit from the artistic treatment of a professional home stager. The goal of staging a home is to make it more appealing while still allowing the potential buyers to envision putting their own personal touch on the property.
Over-improving property
Over-improving a property can lead to financial problems, as you may not be able to recoup the costs of the improvements when you sell.
To determine which improvements are worth making, consider the expectations of potential buyers in your target market. For example, if you’re flipping a starter home, focus on making cost-effective improvements that appeal to first-time homebuyers. Also, avoid updating a property beyond the standard for the neighborhood. This could actually make the property stand out in a negative way.
Ultimately, it’s important to keep a close eye on your budget. Make sure that the improvements you make are in line with your expected return on investment (ROI). Avoiding the trap of over-improvement increases your chances of a successful flip.
Overestimating your abilities
With so many how-to videos on YouTube, it’s tempting to think that you can do anything with the right tools and a smartphone.
But house flipping is a substantial investment, and you are probably not qualified to do most of it. You may be able to put up a wall or refinish a floor, but plumbing and electrical help will require a professional. And you might want to consider finding a general contractor to help where it’s needed.
Ignoring outside/yard
Before potential buyers can appreciate the blood, sweat, and tears you expended inside the home, first they’ll see the outside.
Don’t forget the importance of curb appeal—as well as side yard and backyard appeal. If you’re planning to sell the home in the spring or summer, consider hiring a landscaper to plant some flowers and get the yard in shape first.
Even during colder months, make sure to rake leaves, trim hedges, and keep pathways clear of snow for prospective buyers.
Mismanaging time
You’re almost to your sales deadline, but the house is only half-finished.
To avoid this first-time flipper nightmare, overestimate how long you’ll need to finish the job—especially if you’re working alone. Leave yourself time to undo and redo some work, and don’t create a timeline that will squeeze you beyond your abilities.
If you’re not sure how long projects will take, bring in a general contractor to provide time estimates. Add 50% or double the time on any jobs you plan to do yourself if you’ve never done them before.
House Flipping Mistakes: Conclusion
Flipping a property can be a lucrative way to make money in the real estate industry, but it’s not without its risks.
By following the tips we’ve talked about, you can set yourself up for a successful flip and avoid costly mistakes along the way. Remember to do your research, take the time to plan and budget properly, and work with experienced professionals who can help you achieve your goals.
Flipping a property can be a challenging and rewarding experience, and with the right approach, you can turn it into a profitable venture.
