The Pitfalls of House Flipping

Flipping houses is a great way to make money in real estate.  Among all of the real estate investment methods, house flipping is probably the most advertised and most televised method available.  Additionally, effective house flipping can result in some very large profits.  For all of these reasons, house flipping is very attractive to many investors.  This can create some potential pitfalls if you are not careful.

The very first pitfall you can come across is paying too much for your flip.  The purpose of a flip is to purchase a cheap, distressed property, fix it, and sell it at a higher price in order to make a profit.  The cheaper the house, the more room you have to maneuver in your budget.  As such, never pay too much for a flip.  If you do, you risk cutting into or eliminating your potential profit.  If the seller is asking too much, walk away and look for another property.

Once you have purchased a property, you have to prepare a budget for renovations and repairs.  This can be tricky as some investors do too much to a property and others do not do enough.  You have to make the renovations and repairs that will get you the biggest return for your dollar.  Also, you must consider the neighborhood you are in.  Certain upgrades may make a home too expensive for its neighborhood.  If this occurs, your home may sit for a long time.  This will substantially cut into your profit.

Time is of the essence when you flip a home.  The longer you own the home, the smaller your profit will be on sale.  If you used a mortgage to purchase the property, you have to make the mortgage payment each month until it is sold.  If you paid cash for the property, your money is locked into the house until you sell it.  As such, create a time schedule and stick to it as best as possible.

Finally, once the property is complete, price the property competitively.  If you get greedy and price the property too high, the property may sit for a long time.  This will cut into your profit.  If you price your property too low, you may be leaving money on the table. 

Additionally, have a marketing plan in place to sell the property.  If may be worth paying a commission to a real estate salesperson in order to get the property sold.  Although it may be cheaper in the short term to market the property yourself, lack of exposure may result in the property sitting for a long time.  As such, in the long run, hiring a real estate salesperson may save you money.

Remember, never pay too much for a flip.  Budget appropriately for renovations and repairs.  Consider your neighborhood as too many upscale renovations may make the home too expensive for the target market of the neighborhood.  Time is of the essence.  Buy, renovate, repair, and sell as quickly as possible.  Finally, price your house competitively and make a marketing plan that is the most cost effective for your situation.