Reality television shows and the media have made flipping houses out to be the latest get rich quick scheme as well as a glamorous career choice for those skilled with tools but also seeking a life in front of the camera. They spend roughly 23 minutes condensing the entire process down to a thrilling yet successful bidding war, a fast walk thru with a contractor, a snag or two along the rehab path and then a sale that far exceeds even the stars “professional” estimate for the market value of their latest creation. It is really more of an adult fairy tale than a realistic interpretation of flipping a house. But if the shows have gotten your attention and you have an honest desire to flip a house, then be sure to do your homework and avoid these five common pitfalls.
There are no real deals that are too good to be true. That is just the fairytale version and in real life those are the deals that will bankrupt you. Investing in real estate takes money and there is no way around that. It can be financing or someone else’s money but you will need enough money to make the purchase, pay for the materials and labor for the renovations and to cover carrying costs until the property can be sold. Many first time flippers don’t take into consideration the finance charges and the full cost involved in purchasing and renovating a property. Using a mortgage calculator will help you to visualize the actual cost of a mortgage and let you compare rates from many different lenders.
Television shows are also very deceptive when it comes to the time involved in flipping a house. Would it be fair to think that each minute of the show is actually a day of real time? That might even be a very aggressive time table to achieve when flipping a house. That would mean that you complete the purchase, complete an assessment and renovation budget, complete the repairs and renovations, pass the necessary inspections, market the house and successfully sell it in less than a single month. Again, that is not a timetable based in reality. And time is money when you are covering the carrying costs out of pocket. Setting an honest and achievable schedule is critical to meeting your financial expectations for a property flip. And then, is the time that you invested worth the profit that you made? A 10% profit on a $100,000 investment is only $10,000. Is that enough to make for a two month investment of your money and time? Could you make more working in a retail store or selling used cars?
The last three mistakes are all about perceptions. First, do you really think that you have the skills needed to repair plumbing, electrical and structural issues in a house? Most investors don’t have the skills to complete the work in a professional manner. The next is about your knowledge of the business. Do you really have what it takes to determine a good investment property and be willing to invest your time and money to prove yourself right? And do you have the patience and self-control to wait for that one in one hundred deal to come along. If not, you are making a bad investment just to get into the business. In the end, there are many pitfalls that can turn into financially crippling choices when flipping your first property. To minimize the risk and greatly increase your potential for success visit www.azrealestatewholesale.com to work with a professional real estate investor on your first flip.