By Greg Herlean
In the years Mike and I have been working together on Property Bank, we’ve seen a lot of successful and not-so-successful flip deals go down. While Mike’s the Flipman, I’ve spent a lot of time looking at patterns and elements that make up great deals and horrible losses. That’s why, when Mike comes to me to find financing, I always want to know a few details about the property, how it can make us money, and how it could lose, too. These are a few of the big losers that a lot of new house flippers overlook. These can cost you a lot of money, so avoid them whenever you can.
Trying to Do Everything Yourself
I get it—you don’t want to spend all of your money. You want to stay under budget so you can get the best profit margin on your flip. The thing is, you can’t do that by doing every single thing yourself. If you’re not a great real estate agent, you need to hire one or you’ll have trouble closing deals and selling flips. If you don’t have any experience with construction and remodeling, remember that it costs less and takes less time to pay someone else to do it than it does to learn to do it yourself.
Paying Others for Work You Can Do
Now, with that in mind, if you don’t take on some of your work yourself, at least in the beginning when you’re only flipping one or two houses at a time, you can bleed yourself dry hiring people to do every little thing. At this point, you should be chasing deals and filling your lead funnel, and you should be personally overseeing your projects and doing everything you feasibly can to keep your costs low.
Not Shopping for Deals on Materials
You don’t have to buy the latest model of cabinets, and you don’t have to buy the first flooring you find. Take some time with your first flips to find the best materials suppliers. Learn about their inventory. Find out when they have clearance sales and what you can buy ahead of time in bulk to save on future flips. The more research you do and the more you shop around, the better deals you’ll find on your rehab supplies and materials.
Forgetting about the Closing Costs
Want to sell a house fast? Offer to pay the closing costs. Want to see a chunk of your margin fly out the window? Forget about those closing costs when you create your budget for your flip. Always remember that this is going to be a cost you’ll have to pay at the end of the deal.
Asking Too Much Money for a Flip
If you go over budget on your rehabs, you might be tempted to jack the asking price up a notch or two. Here’s the problem with this logic—the market doesn’t care how much you spent on rehabbing your flip. You can’t try to sell a house for more than its market value just because you want to get more money back out of it. Your buyers will see that it’s a bad deal and will move on to other houses in the area that are priced better. Then your house will sit on the market going stale, and you’ll probably have to lower your price below what you could’ve gotten in the first place.
Avoid these five money-draining mistakes, and you’ll be on your way to house flipping success.