Three Big Financial Mistakes that House Flippers Should Avoid

Money Down the Drain

By Greg

Starting your own real estate investing business can be intimidating and exhilarating. As you begin to get to know the real estate industry and the house flipping business, you’re inevitably going to be over-prepared in some areas and under-prepared in others. If you wait until you know everything there is to know about flipping houses and investing in real estate, though, you’re never going to get started – because there’s always something new to learn.

That said, over the past ten years specializing in capital building through real estate transactions, I’ve noticed a lot of new investors making some very similar mistakes that have cost them a lot of money. If you want to build your wealth more efficiently and get the most out of your house flips, avoid making these mistakes for your real estate investment business.

Viewing Other Flippers as the Competition

First of all, you may compete with other real estate investors and house flippers in some small capacity on certain deals. For example, you might find yourself in a bidding war with another flipper at an auction, or another flipper could be selling a comparable property near your latest flip house. However, for the most part, you’re not in direct competition with these people, so viewing them as such doesn’t do anything for you.

In fact, treating other house flippers as your competition can actually hurt your business a great deal. Imagine, for a moment, that you find a house at an amazing price, but you don’t have quite enough capital to buy it. At the same time, your contractors and project manager are stretched a little bit thin, too. They could take on some of the work, but not all of it. So, you have to pass on the deal, right? Not necessarily.
If you treat other flippers like colleagues potential business partners instead of competition, you might actually be able to take advantage of this deal by splitting it with another house flipper. Or, if you can’t take on this deal right now, you can pass it on to another investor. If you scratch their back now, they’re going to be more likely to scratch yours later, too.

Spending Money on the Rehab to Make Money on the Sale

Next, if the price on a flip house is too high, you’re not going to make up for it with over-rehabbing. Spending extra money on your rehab to try to bring the market value of your house up is generally a bad idea. Remember, you make your money in this business by finding great deals on distressed properties and then bringing them up to market value.

With that model, even if you sell at just under market value, you’ll still make a profit. If, on the other hand, you use up your profit margin on expensive rehabs, you’ll just lose money and end up with an overpriced house sitting on the market for months.

Neglecting the Power of Networking

Finally, every successful real estate investor is a master of networking. Real estate is an industry built on business relationships, and by building those relationships, you can gain more avenues for leveraging capital for your flips.

If you neglect to network with other real estate investors, private investors, lenders, and other real estate professionals, you’re closing the door to a lot of opportunities for your real estate investing business. If you focus on creating and maintaining healthy relationships in this business, you’ll find that house flipping gets easier and easier and that your business and wealth grow faster than you could have ever imagined.

 

Sources:

http://www.investopedia.com/articles/mortgages-real-estate/08/house-flip.asp

https://www.biggerpockets.com/blogs/4999/blog_posts/37987-5-mistakes-that-will-turn-your-flip-into-a-major-flophouse-flipping-is

http://www.foxbusiness.com/personal-finance/2013/04/03/tips-for-making-money-off-your-first-house-flip/

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About the author

Greg has spent the last 10 years focused on the growth opportunities and wealth accumulation through Real Estate vehicles. He has provided management direction, capital restructuring, investment research analysis, business projection analysis, and capital acquisition services which governed and impacted over $700 million in Real Estate transactions. Greg is also a much sought-after platform speaker on the topics of capital development, investment growth through use of self-directed IRA vehicles, and estate planning.

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