Five Fix and Flip Investing Mistakes To Avoid

Like any business, working to fix and flip rehab properties has its pitfalls. But you can learn to navigate these pitfalls in a successful way; if you’re resilient, learn from mistakes (yours and others), you’ll be able to effectively accomplish your goals. In this section, we’ll look at some of the top mistakes people make when trying to flip houses, and what you can do to avoid them.

1) Starting with An Unbalanced Sheet

The home construction process is much easier if you’re not starting in a financial hole. Real estate investors get in trouble with get-rich-quick schemes, not having enough startup funds, and over-leveraging themselves. In short, they find trouble when they do not have the money to get started, including the access to financing. Avoid this trap by getting your finances together before you start buying. You certainly don’t need to be a millionaire, not even close, but you do need to be ready to incur costs. Don’t invest your life savings in any one project. The best fix and flippers leverage their funds by spreading it out over several properties, using financing to cover the bulk of their purchase price and to cover their rehab/construction funds.

2) Not Knowing Costs

Most people have no clue what it actually costs to fix and flip rehab properties. If you’ve done it a few times, you should have a grasp on what your budget for everything — from landscaping to finish paint, both materials and labor — might be. But even then, prices are constantly changing depending on the market as a whole. If you’re just starting out, avoid cost overruns by doing your research first. Actually get bids from subcontractors and price materials from wholesalers. One “I can’t believe this is that expensive” moment, and you’re already starting to chip away at your profit margin.

Also it is imperative that you protect your investment in your mini business called fix and flipping with certain precautions: 1) Have the right insurance in place, including insurance against theft/vandalism. I’ve seen too many times where investor’s profits have been completely erased because someone took off with their materials they had on site or stole the appliances, or ripped the copper plumbing right out of the walls, causing much collateral damage in the process, or stole the water heater. I could go on and on. Don’t be penny wise and pound foolish; make sure you have the right insurance. Also protect your investments as they are being worked on from the very start to the very end until you close escrow with the new buyer as it is your responsibility until escrow closes. Many investor developers will put in an alarm system once the place is secured and can be locked up. Today this is a very inexpensive option. Some have one of their subs stay at the house while it’s being worked on. Some pay the neighbors a small token to watch and call them on their cell phone if anything looks suspicious.

It is also worth reminding you that this fix and flip game is all about getting the work completely finished and sold as fast as possible. The quicker you can do this, the more profit you will make. If you drag your feet you will make less and your lender will make more money in interest. The goal is to put more money in your pocket so efficiency is the name of the game from to start to finish.

3) Doing Too Much of the Work Yourself

On that note, know your limits when it comes to your own labor. You should find out what you can do yourself to save costs, and learn to do those tasks efficiently and well. But, it is just as important to know when it makes sense to have a sub-contractor do the work. If they can do it faster and better than you, find someone you trust to do so. People get bogged down when they think they can save money, but then lose time (and then more money later on).

4) Design Overboard

Don’t put too much into your rehab properties. They are not rehabbed to win design awards (say no to those crystal wall sconces). Home construction isn’t always a contest. In fact, the less you put into it can be directly correlated to the most you can get out of it. If you are efficient with the materials and processes you use, you can do the exact minimum to get the most profit from a rehab property. Remember the standard of rehab is dictated by your immediate competition in your immediate neighborhood. You don’t want to deviate too much from that, either positively or negatively.

5) Not Properly Reinvesting Profit

Only a small number of real estate investors will turn good profits consistently day in and day out, regardless of the market. You can become one of those investors if you are diligent, and keep learning and improving your process. If you seek to continue your business of working with rehab properties, learn from the smaller successes and failures that underpinned your last project. Then, apply those lessons – and the profits you made – on your next project. This can include everything from buying in a different neighborhood to using a different kind of paint on the interior trim. You will soon develop a rhythm and your own personal style and you’ll have your own personal recipe for success.