Beginner mistakes on house flipping

homealone · #1 10-05-2008, 08:49 AM

If you are wanting to get into house flipping to make yourself some money, it can be a great idea. Though there are risks, and here are a few mistakes that are commonly made by those who are just getting started.

1. Keep yourself from making emotional buys. This means do not allow the visions of what a house could be like, distract you. Always keep in mind that you are in this to make a profit and have to think of the costs to fix up the place. Being driven by emotions will cause a serious impact on your bottem line.

2. Dont get lazy and just purchase a home because you become tired of shopping around. Before you purchase any property you should get an idea of what it will sell for. Shop around and continue to do so until you find property which is going to work for you. If you allow yourself to just purchase anything because you have gotten tired of looking, well this could end up costing you a whole lot in the end.

3. Knowledge is the key to house flipping.There is no substitute for intimate knowledge of your target area and the local economy at any given time. The more you know the better off you will be.

4. Be sure to shop for the materials for the fixes needed, well before the closing of the transaction. Now you dont need to actully buy the materials, but this will give you a very good idea of what it is going to cost to make the repairs. This plan will also give you the idea of where to purchase each item needed,and where it is available at. Then once the home has closed your are ready to begin.This will also allow you to move more quickly and move on to your next project. Also by not purchasing the materials but just shopping around you will save yourself if for some unseen reason the house does not close.

5. One of the largest mistakes people make is to underestimate the costs. Before you even begin to negotiate a price with a seller, you should know closing costs and loan fees. It is important you speak to escrow people, loan officers, real estate agents and contractors as well. This way you will have good knowledge of the costs long before you make your offer. By not doing this, you could end up facing costs your not prepared for.

6. Real estate has alot of money to be made. Though this does not mean for you to make attempts at taking advantage of people. Sellers are often under a great deal of stress, and in most cases if you show compassion and real concern for the sellers situation and problem you will find that you have a much higher rate of success when negotiating. After all a seller is just as human as you are.

Giving yourself as much experience and knowledge about flipping houses is your best defense against making costly mistakes. Prepare yourself as much as possible, and learn from the mistakes of others.

Lady Flipper · #2 10-05-2008, 03:07 PM

My main motto is: make sure you have the money you will need, times two.

In today's market sales are slow, be prepared to pay a mortgage for some time to come. It's wonderful to buy in a depressed market like this, but you have to be prepared to hold on to the property for some time.

missmanors · #3 10-05-2008, 10:57 PM

I've been thinking that with the housing market in the bad situation that it's in right now, that maybe buying flips, doing the renovations that are necessary, and then renting them out until such time that the housing market looks good again.

Do any of you have thoughts on this? It just seems to be such a bad time to be trying to flip houses, that this seems to be the best option.

homealone · #4 10-06-2008, 04:35 AM

Well I have to admit that if I were able to purchase a home and rennovate it, I would most likely make it a rental rather than trying to sell it off. Of course this I guess would depend on the area that the home is located also. I hear that can make a huge difference. Some areas that have homes for sale, sell quickly, while others not so much. I have a feeling that in my area it would benefit me more to just rent it out.

JaredfromIndiana · #5 10-06-2008, 12:50 PM

Quote:

Originally Posted by missmanors

I've been thinking that with the housing market in the bad situation that it's in right now, that maybe buying flips, doing the renovations that are necessary, and then renting them out until such time that the housing market looks good again.

Do any of you have thoughts on this? It just seems to be such a bad time to be trying to flip houses, that this seems to be the best option.

I would be very nervous to do extensive renovations and then rent the house out. By the time you are ready to sell it in a few years it will be worn and torn more than you would probably like it to be, then you have to put MORE money in it to sell it.

I think flipping is still an option but you have to REALLY REALLY REALLY buy it right! You should also have more than one exit strategy. If you can't sell it retail in the time you want then you should know how to sell it via lease option or land contract.

JaredfromIndiana · #6 10-06-2008, 01:03 PM

Quote:

Originally Posted by homealone

If you are wanting to get into house flipping to make yourself some money, it can be a great idea. Though there are risks, and here are a few mistakes that are commonly made by those who are just getting started.

1. Keep yourself from making emotional buys. This means do not allow the visions of what a house could be like, distract you. Always keep in mind that you are in this to make a profit and have to think of the costs to fix up the place. Being driven by emotions will cause a serious impact on your bottem line. <~~~ New investors tend to get too attached to the house. Ask me how I know...

2. Dont get lazy and just purchase a home because you become tired of shopping around. Before you purchase any property you should get an idea of what it will sell for. Shop around and continue to do so until you find property which is going to work for you. If you allow yourself to just purchase anything because you have gotten tired of looking, well this could end up costing you a whole lot in the end. <~~~ I bought a house last year just to have a deal going. Well, it wasn't a deal. I ended up losing money on it. You do that in this depressed market and your bound to lose money just like me! Oh, and you need to know exactly what you can get for your project once it's finished. Comps of houses that have sold in the last 6 months is key. If your house comps out at $100,000, you should buy it right so that you can sell it at $90,000 if you have to...

3. Knowledge is the key to house flipping.There is no substitute for intimate knowledge of your target area and the local economy at any given time. The more you know the better off you will be.

4. Be sure to shop for the materials for the fixes needed, well before the closing of the transaction. Now you dont need to actully buy the materials, but this will give you a very good idea of what it is going to cost to make the repairs. This plan will also give you the idea of where to purchase each item needed,and where it is available at. Then once the home has closed your are ready to begin.This will also allow you to move more quickly and move on to your next project. Also by not purchasing the materials but just shopping around you will save yourself if for some unseen reason the house does not close. <~~~ Good point. Don't ever ever ever put a penny into the deal until it closes. I ordered countertops on one project before it closed only because it took 3-4 weeks to get the tops in and the flip was only going to take 2 weeks. Luckily they came in on time and we closed the house but I wouldn't recommend buying any materials before you close unless it's a situation like this.

Having knowledge of prices of material/labor is key. I can put together a budget on a house within 5 minutes of looking at it because I have to know what things cost to do this.

5. One of the largest mistakes people make is to underestimate the costs. Before you even begin to negotiate a price with a seller, you should know closing costs and loan fees. It is important you speak to escrow people, loan officers, real estate agents and contractors as well. This way you will have good knowledge of the costs long before you make your offer. By not doing this, you could end up facing costs your not prepared for. <~~~ LOL! Took me a while on this one. I remember saying... "What? My closing costs are going to be HOW MUCH???" I also remember selling my first house. "What? I have to pay for both realtors?? I don't even like that one!!" Closing costs on the buying end for me are usually $1,500-$2,000 on a conventional mortgage, and on the selling end they usually run around $600. The seller always pays for the realtors fees, and that is usually 6% of the selling price.

Oh, and don't forget on the buying end... utilities. When we started out the gas compay was charging us a $500 deposit to get the gas turned on. Not a great surprise.

6. Real estate has alot of money to be made. Though this does not mean for you to make attempts at taking advantage of people. Sellers are often under a great deal of stress, and in most cases if you show compassion and real concern for the sellers situation and problem you will find that you have a much higher rate of success when negotiating. After all a seller is just as human as you are. <~~~ This applies when you are marketing for motivated sellers. If you are buying a bank owned property then lowball away!!

Our current house is one we bought off a guy that was almost in tears after he saw how bad his tenants trashed it. He looked at me and said "TAKE THIS PIECE OF SH#T!" We agreed on a price that would work for both of us and I definitely had compassion and empathy for this guy. The bottom line is making money and helping people, not taking advantage of them.

Giving yourself as much experience and knowledge about flipping houses is your best defense against making costly mistakes. Prepare yourself as much as possible, and learn from the mistakes of others.

Learning from others is a pretty good way to ensure you don't screw it all up! LOL!!

Lady Flipper · #7 10-06-2008, 02:42 PM

Quote:

Originally Posted by JaredfromIndiana

I would be very nervous to do extensive renovations and then rent the house out. By the time you are ready to sell it in a few years it will be worn and torn more than you would probably like it to be, then you have to put MORE money in it to sell it.

I think flipping is still an option but you have to REALLY REALLY REALLY buy it right! You should also have more than one exit strategy. If you can't sell it retail in the time you want then you should know how to sell it via lease option or land contract.

Lease option - do you mean what we call "rent to own"?

JaredfromIndiana · #8 10-06-2008, 02:46 PM

Yes, rent to own. $2-5,000 down, enrollment into credit repair program, and 1-2 year contract to buy.

Buy the property right and you get paid on the front, monthly cashflow, and big payday on the back end.

Lady Flipper · #9 10-06-2008, 03:51 PM

This all reminds me so much of the big savings and loan crash in 1988. http://findarticles.com/p/articles/m...v40/ai_6622769 That's an article from then.

The bailout, the carelessly given loans, the "creative financing" all was a part of the scene then also. And one of the better solutions people did find then was also the "rent to own" concept. It kept the market moving...