Flipping a house is a rewarding way to make buckets of cash – at least, it seems that way if you watch HGTV. The choice to purchase and renovate a homes for re-sale, rather than occupancy, has soared in popularity. According to statistics published by the real estate platform Trulia, nearly 6% of all home sales in 2016 were fix-n’-sell projects. This may not sound like much at first read, but when you apply the percentage to nationwide sales numbers, it becomes significant. The question is, are these buyers finding the same success that Chip and Joanna Gaines seem to achieve at the end of each episode of Fixer Upper?
Apparently not. In the real world, those who enter the home investment markets with the expectation of earning tens of thousands on their first flipped house are in for a rude awakening. An analysis conducted by Time MONEY in 2016 found that a full 12% of all “flips” were sold at a loss or with no net profit at all. In nearly 28% of cases, the gross profit came in at less that 20% of the initial purchase price. Think about that for a moment – that means that after spending tens of thousands acquiring a property and pouring thousands more into renovations, you might find yourself financially worse off than you were before.
Needless to say, would-be investors should turn off HGTV and look at the real risks involved in flipping a property if they decide to move forward on a deal – and they should certainly avoid these deadly missteps if they do.
Successful investors don’t keep a sunny perspective when they start a project. Budgeting with the best circumstances in mind near-guarantees that you will be unprepared when something goes wrong. After all, what will you do if you find out the perfect project property you bought has a disastrously flawed plumbing system? Be realistic when you budget your acquisition, financing, and renovation costs – and always leave yourself a buffer to fall back on if a setback arises.
Taking on a Project Outside Your Skillset
Can you install a sink? What about putting down carpet? How are your roofing skills?
If these tasks fall outside your skillset, you might want to reconsider your decision to enter into house flipping. Those who invest in project properties make money because they don’t have to contract most of the work out to expensive professionals. Investors who do need to call in outside help run the risk of hemorrhaging money during renovations and slicing through their final profits.
Dabbling Without Experience
If you’ve never flipped a house before…you should probably keep it that way. Flipping houses isn’t a hobby for amateurs. If you want to make a real profit by rehabbing homes for sale, you need to have experience in the housing market, understand relevant laws, and know when to call it quits on a sinking project. A lack of experience could spell the end for the most promising project.
Making Unnecessary Renovations
Fixer-upper homes don’t need marble countertops or shiny new hardwood floors. Successful investors know that the best upgrades to make are the ones that come cheaply and look great during open houses: a new coat of paint, nice carpeting, and new fixtures. The biggest mistakes a new flipper can make is upgrading everything in sight – or worse, pricing the home out of the market. You may have rehabbed a project into a $300,000 property, but you’ll need to bring your asking price down significantly if the top quote for every other home on the block is worth $250,000. Remember, you’re not trying to make the perfect home! Odds are, the family or individual who buys what you sell will want to make their own upgrades over time.