Flipping a house can be a great way to bring in a lot of extra money within a very short span of time. However, as many first-time flippers quickly discover, this process isn’t always as easy as popular media makes it out to be. Inexperienced flippers are liable to hit a number of roadblocks, many of which can dramatically impact the profitability of the project. So, if you’ll soon be tackling your first flip, be mindful of the following impediments.
Failing to Budget Properly
A lack of proper budgeting can prove disastrous to flippers looking to generate big returns. Before diving into such an expensive project, it helps to have a solid understanding of how much you’ll be spending. Knowing how much money it will take to get a flip in sellable condition can help prevent you from making an unwise investment. For example, if the cost of renovating a home exceeds the profit you stand to make from said home, it’s in your best interest to turn your focus to other potential flips.
With this in mind, make a point of obtaining contractor estimates for all necessary repairs and renovations before proceeding to make an offer. While estimates aren’t always set in stone, they should give you a good idea of how much capital you’ll need to undertake a flip. Furthermore, since there’s a good chance the final cost of the work will be a little more than what you were quoted, take care to set some money aside for this highly likely eventuality.
In the absence of smart budgeting, there’s a strong possibility that you’ll run out of money before the necessary work is complete. And as you’ll find, not many contractors are willing to stick around if you can’t be depended on to provide timely compensation. This will result in you being stuck with a partially renovated home that you may have no choice but to sell at a considerable loss.
Buying a Home in a Low-Demand Area
Before investing in a flip, take care to do some research into its location. No matter how nice a potential flip is, it may not be able to command your desired post-renovation asking price if it’s located in an area with very little demand for housing. So, to help ensure that you don’t wind up selling at a loss, research the population, local economy, rent prices and property values for the location of any home you’re interested in flipping. Taking the time to do a little research can prevent you from making an unwise investment and save you a considerable amount of time and money.
Not Obtaining the Proper Permits
Many types of home additions and renovations require certain permits to be obtained before work is able to proceed. Needless to say, discovering that the proper permits weren’t obtained once work is already underway can be tremendously frustrating and financially strenuous. So, before setting to work on a flip, make sure that any necessary permits have been acquired. Fortunately, obtaining permits is often a simple undertaking, particularly in municipalities that utilize convenient permitting software.
Hiring Unlicensed Contractors
No matter how desperate you are to conserve financial resources, you should abstain from hiring unlicensed contractors. You may find their comparatively low prices tempting, but unlicensed contractors have very little incentive to provide you with accurate quotes or finish jobs within your desired budget or time-frame, nor can they pull building permits. Furthermore, if an unlicensed contractor incurs injuries in the process of working for you, you may find yourself shelling out the money for the ensuing medical expenses. So, regardless of how committed you are to frugality, you should never give your business to a contractor who isn’t fully licensed and bonded.
If you go into your first house flip expecting it to be a piece of cake, you may be in for an unpleasant surprise. In many cases, flips aren’t as seamless as some reality shows make them out to be. So, if your knowledge of flipping homes comes exclusively from television, you’d do well to temper your expectations. First-time flippers who dive in unprepared often hit a number of roadblocks, many of which can prove both cumbersome and costly. Fortunately, taking the time to study up on these impediments and plan accordingly can dramatically reduce your odds of encountering pressing issues with your first flip.