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Avoid These 7 Common Mistakes Of House Flipping

Avoid These 7 Common Mistakes Of House Flipping

Investing in real estate is a competitive business. No doubt, investors get into the game to make money. However, things don’t always work out according to plan, and mistakes will inevitably be made, and you will have to pay for them. If you go through this article properly and consider the circumstances beforehand, you can avoid these seven common mistakes of house flipping.

What is House Flipping?

Flipping houses is an investment approach in the real estate market. Flipping a house involves buying a home that needs work, renovating it, adding value, and selling it at a greater profit. Here are the seven common mistakes of house flipping:

Electing the Wrong House to Flip

Buying the wrong house or property is the first and most common mistake; you can’t expect to turn a profit by flipping a house just because it’s on sale for a low price. Therefore, you should also be aware of the latest market trends and determine whether the property’s location, orientation, and layout contribute to its value. Also, hire a professional with precise real-estate knowledge and who knows the market conditions.

Not Budgeting Correctly

Flipping houses is fraught with pitfalls, which include not budgeting properly. Building and renovating costs can vary dramatically depending on permits, location, and other factors. Before beginning a house-flipping project, budget accordingly – and include the possibility of unexpected expenses in your plans.

Over-enhancement of Home

Over-enhancement is another typical mistake house flippers make. Renovations can quickly get out of hand and end up making a house too expensive for the local market. Using top-quality materials is always a sound idea but within limits. The best way to avoid this is to talk to an experienced real estate agent about the home’s post-repair value.

Choosing the Wrong Contractor

The next house flipping mistake is choosing the wrong contractor. An unprofessional contractor can turn your potentially profitable venture into a disastrous financial move, regardless of how minor the issue may seem. So avoid paying large amounts upfront and ensure there are deliverables in the contract. Ask all the necessary questions before hiring them.

Not Running Comps Before buying

A comp analysis should not be performed for the first time after an investment property is purchased and the renovations have been completed. It is definitely a good idea to run the comps before listing your home, but it is also a good idea to do so before you purchase it. Only by doing so will you be able to accurately estimate the gross return after the acquisition, renovation, and listing.

Considering Yourself Jack of All Trades

Do you have a license as an electrician or a plumber? Many flippers mistakenly believe they can perform most of the renovations on their own, only to find out it’s not as easy as they thought. It is usually a waste of time, money, and materials if you try to do it all on your own. So think twice.

Ignoring Taxes

People often forget to factor another line item into their break-even calculations when they calculate the purchase price and renovation costs. Taxes are unavoidable and will reduce your net return. You will be required to pay short-term capital gains taxes when you make a profit. It will also be necessary to pay transfer taxes and property taxes.

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  • December 19, 2022
  • 3 min read
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