You’re thinking of getting into the fix and flip real estate business. All you have to do is find a house, make a few repairs, and sell it for a huge profit…right?
It all looks so simple, doesn’t it? It’s easy to be tempted the many TV programs out there to try your hand at remodeling your own “fixer-upper.” If you’ve been dreaming of becoming the next Property Brother, you’re not alone; the home-flipping business has been steadily increasing in popularity according to a recent study. As you watch the cute families having fun renovating houses together, you may think, “why not me?”
While flipping your investment property can indeed be fun, don’t be fooled the smiling faces on those 30-minute reality TV segments…it’s a lot of hard work too! If you’re ready to flip your investment property, let’s explore a few financial pitfalls you can avoid on your way to creating the HGTV career of your dreams.
Taking An Unwise Financial Risk
When you’re first starting out in the fix and flip business, wisely managing your finances is the most important key to your future success. Taking an unwise financial risk is a mistake in any area, but especially detrimental when you’re investing in a fixer-upper.
In order to maximize your return potential, you should budget mindfully for each project. Don’t pay too much for your property, and decide upfront how much money you intend to put into repairs. Additionally, you should consider partnering with a professional who specializes in fix and flip loans to offset some of the cost and help you focus on your remodel.
When in doubt, experts recommend you use the 70% rule. This guideline recommends that you pay 70% or less of the ARV, or after-repair value, of a property minus necessary repairs. This rule should help you create a budget and maximize your return when it’s time to sell.
Underestimating The Time Commitment
It’s hard to imagine that flipping houses are a full-time commitment when you’re watching the highlights on TV! Don’t make the mistake of underestimating the time it will take out of your schedule to fix and flip a house. For many, this is a full-time job. If you are taking on the remodel yourself and you have a day job, you can say goode to your nights and weekends for the foreseeable future.
Even if you choose to partner with a contractor, you will still be spending countless hours communicating your vision, overseeing various stages of the remodel, and assuring that you are on track to finish and sell on time… Not to mention the time it will take to get the house inspected, show it to prospective buyers, and sell your property. Be sure that you are aware of the time commitment you are making when you decide to flip your investment property.
Underestimating The Skill Required
Flipping houses is not a casual venture. If you are someone who is handy with a power tool who knows how to lay carpet, fix plumbing, or repair a roof, it looks like you have some of the skills required to take on a fixer-upper. If you have none of these skills, you will have to hire a contractor, and this will cost you in profit.
Even if you don’t plan on doing the remodel yourself, there is a considerable amount of skill required. You need a discerning eye to choose the right property and to know the best areas to invest in and why. You will need excellent time management skills and decent business knowledge, and the ability to manage multiple people working for you
While it will never be as easy as buy, flip, sell, repeat, you can simplify your career in the fix and flip business wisely managing your finances and understanding the time and skill required to turn a valuable profit in this industry.