Why First-Time House Flippers Often Fail
It sure sounds exciting to flip houses. The TV shows make it look easy and glamorous. The concept seems simple. You buy a house cheap, you fix it up and you sell it for a huge profit! Experienced house flippers know it’s never quite that easy. First-time house flippers often learn the hard way.
Not as Easy as You Think
There are several reasons why inexperienced real estate investors tend to fail on their first house flipping attempt. And by “fail,” we mean a wide range of potentially disappointing results. “Success” for a fix and flip profit usually represents a relatively smooth renovation process and a healthy profit at the end of the deal. “Failure” could mean breaking even, losing money or just eking out a small profit that hardly made all the work worthwhile. Sometimes, even relatively profitable flips feel like failures if they took longer than expected or there were a lot of unexpected headaches along the way.
So, why do many first-time house flippers fail on some level? The simple answer is usually that they are unprepared for the experience. Buying, renovating and then selling a home is a massive undertaking. There is so much work, planning and financial investment that will need to go into the process from concept to completion. Flipping a house is not something you should just figure out as you go. You have to have a plan and you have to stick to that plan as much as possible.
Treat it as a Business
The first thing to realize is that managing a fix and flip investment is a business venture. Therefore, you must treat it as a business when it comes to planning and budgeting. Not just any property you buy will turn a profit. You have to be strategic about what you buy and how much you pay for it. You have to run detailed analytics to project the renovation costs, timeline and the ultimate resale price. The real estate market can be fickle. What’s hot today may be cold in six months.
Another helpful tip for a first-time flipper is to plan for the worst. By this, we are talking about being more conservative with your budget and in terms of estimated renovation expenses/timeline and resale price. Even the most experienced house flippers will run into delays and complications during the purchase, renovation and/or selling processes. No matter how much you plan out, there are almost always some surprises along the way. Build your budget with plenty of wiggle room to cover unexpected expenses. Create a timeline that has some flexibility in case of delays and complications. Expect to get something closer to the bottom end of your projected price range during the sale. This way, you are covered in case things don’t go perfectly right every step of the way.
Build Your Team
Another common mistake first-time house flippers make is trying to do too much by themselves. Whether that’s a result of being too frugal or too overconfident, it can backfire significantly if you get in over your head. Join a real estate investment network like PropertyLark. Build relationships with reputable contractors, real estate agents and other service providers. Surround yourself with the right people to make your project as successful as possible.
We’re not trying to scare anyone away from flipping houses. We’re just trying to provide insight to help you make better decisions if you are investing in fix and flip real estate. You can be very successful in this business if you do things right!
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