The Three Most Common Mistakes that Investors Make When Flipping Houses
House flipping has in a lot of ways become the day trading of the first decades of the 2000s. However, it is not uncommon that in the rush to make a profit, far too many would-be real estate professionals overlook the most basic points and end up failing. Here is a look at the three most common mistakes investors make in this market and how to avoid them.
Not Having Enough Money to Start Out
Investing in real estate is an extremely expensive proposition. The first expense is the property itself. While low/no money down financing claims abound, finding these deals from a legitimate seller is easier said than done. Also, if you are taking out a loan you will be paying interest. Although the interest on borrowed money is tax-deductible, it is not a complete 100% deduction. Every dollar spent on interest increases to the amount you will need to earn on the sale just to break even.
Not Giving Yourself Enough Time
The reality is that renovating and flipping houses is a time-consuming business venture. It can take several months to find and buy the right property, and once you own the house, you’ll need to invest time to fix it up. Before you can sell it, you’ll need to schedule numerous inspections to make sure the property complies with all building codes. If it doesn’t, you need to spend more time and money to bring it up to par. Once that is done you will need to invest the necessary time to sell the property. If you show it to prospective buyers yourself, you’ll spend plenty of time commuting to and from the property and meeting with potential buyers.
Not Having Enough Knowledge About Flipping Houses and the Local Real Estate Market
In order to be successful, you will need to be able to pick the right property. This means finding the right location, neighborhood, price, and market. For example, if you are looking in a neighborhood of $100,000 homes, do you really expect to buy at $60,000 and sell at $200,000. Even if you get the deal of a lifetime, you need to know which renovations to make and which to skip. You also need to understand the applicable tax laws and know when to cut your losses and get out before your project becomes a money pit. If you are unaware of what the real estate market is in your area, you should take the necessary time to study it and speak to other, more experienced professionals. This will allow you to gain additional perspectives and information, thus protecting your investment.
Flipping houses is a unique business. Once you decide to start, it is important that you take the necessary time to educate yourself and to ensure that all of your ducks are in a row prior to making that initial purchase. Like anything, there are a lot of potential pitfalls that real estate investors make, however, if you are able to take your time and speak to those with more experience than you than your transition into real estate investing and flipping houses will go much smoother.