Summary:
Flipping is the new national obsession. We read books about flipping, watch TV shows about flipping, dream and scheme about flipping, all the while imagining our future as property tycoons. But there are pitfalls. This article outlines ten major mistakes that flipping novices tend to commit, and gives advice on how to avoid making those mistakes in the first place.

Details or Sample:
How to Flip, Not Flop: Ten Mistakes to Avoid When Flipping Houses

By Alison Braidwood

Flipping houses has become a national obsession. Just buy a cheap property, renovate it fast, and then sell it for a tidy profit. That’s the theory, anyway. Unfortunately, the reality of property development isn’t as straightforward as the dream. You may have watched every episode of “Flip This House,” but unless you learn to avoid the pitfalls of flipping, you risk financial disaster.

Listed below for your enjoyment and education are ten mistakes to which novice flippers are prone. You will, of course, avoid them all, go on to become a flipping tycoon, and end up with your own television show:

1) Not Doing Your Homework

You must do your homework. Get to know house prices in your area and teach yourself what sells before contemplating a flip. If you know what the average three-bed, two-bath bungalow sells for in your area, you will find it easier to spot a bargain house when it’s under your nose. Be sure to look at numerous properties before you even think of buying. Figure out your selling price before you make an offer and make sure you can realistically achieve a profit.

2) Skipping the House Inspection

Always have a house inspection or survey done. This will cost you several hundred dollars, but could save you thousands in unexpected renovation costs. A house inspector is trained to look for structural flaws and warning signs that you might overlook. It’s far better to spend a few hundred dollars on an inspection than to get stuck with a house that costs you money.

When starting your flipping career, it’s smart to look for properties that only require cosmetic changes. This is why it’s important to get a house inspection before you commit yourself to a purchase. If you’ve only budgeted for paint and some spiffy laminate flooring, having to pay out thousands for a new roof could ruin your day, and your flip.

3) Buying a House Without Viewing It First

Never purchase a property sight unseen - it may look pristine on the broker’s website, but photos can hide a multitude of structural sins. You must view the house in person, preferably more than once.

4) Decorating in Your Own Inimitable Style

You should re-decorate your flip with the broadest possible market in mind. Keep your penchant for funky orange wallpaper to yourself. You may loathe beige but you’re not going to live there, are you? Stick to neutral decor that will allow the prospective buyer to envisage their own furniture in the house.

5) The Love That Dare Not Speak Its Name…

Do not become emotionally involved with your flip. Some flippers become so attached to their reno that only the best appliances, fixtures and fittings will do. Celebrity TV designers can afford to insist on top-of-the-line everything. After all, they’re not paying for it. Travertine marble and Corian countertops are great, but only if they add value and you can recoup the expense when you sell. Flipping houses is a business, so keep a cool head and an eye on your bottom-line.

6) Not Shopping Around For Contractors

Your neighbor’s brother’s contractor friend may indeed be fantastic. You still need to get bids from several different contractors. And don’t automatically go for the lowest quote. Study the quotes and compare like-for-like. Check how much each contractor quotes for re-plastering, for example. Watch for contractors who fail to quote for work that their competitors say is necessary. Ask for references and check out your contractor of choice with your local Better Business Bureau or Chamber of Commerce.

Make sure the contractor you choose is licensed. Have a contract drawn up that spells out exactly what is expected of your contractor and make sure you can get rid of them with no penalty to you if they don’t perform.

7) Under-estimating Renovation Time

You may be aiming to complete your project in four weeks, but flip timelines are notorious for going awry. Your plumber may break his leg. Your contractor may get arrested. Three months into the renovation you could still be hammering and painting. You need to plan for a worst-case scenario, and then do your best to avoid it.

8) Under-estimating Renovation Costs

It’s not just the building costs you need to account for. Your budget should also cover real estate closing fees, bank loan fees and potential extra mortgage payments (if your renovations take longer than expected or the house fails to sell quickly). And it’s always wise to add at least 20% extra on top of your contractor’s quote.

9) Not Being Organized

You need to keep meticulous records. Keep a spreadsheet to track the materials you buy, and any monies you pay out. If you don’t document your expenses properly it’s easy to lose track of your spending - and any profit you hope to make. Work out a realistic renovation schedule and do your best to stick to it. Unless you hire a project manager (which, let’s face it, isn’t likely to happen until you become a big-time property developer), then it’s up to you to keep on top of things. Your contractor’s job is to make sure his tradesmen show up and do their jobs, but you need to keep an eye on the contractor.

10) Quitting Your Day Job

This is a bad idea. Don’t even think of quitting your job until you’ve got several profitable flips under your belt and a comfortable cushion of money in the bank. In other words, wait until you’re sure you can make a living from flipping before giving your job the heave-ho. When you first start flipping your day job means security. Income from your job gives you some flexibility; it could mean the difference between profit and loss if your flip is hit by unforeseen expense.

Successful real estate flipping means careful planning, doing your homework and expecting the unexpected. You can make a good living flipping houses; thousands of people do it full-time. But real estate flipping is a job, and like any job there’s a learning curve. You’ve just been given ten mistakes to avoid, but there are others out there! Do your research, learn from the experts and go forth and flip.

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Written by: Alison Braidwood
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