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Infographic: 4 Profit Killing Mistakes Made By New House Flippers

by | May 19, 2016 | 0 comments

Benefit from the mistakes of other first time home flippers.

No one is perfect. When it comes to real estate investing, even the savviest investors make mistakes their first time around. While we do our best to guide new investors through the process, there are still several mistakes we find new investors making that can cause a deal to go from profitable to break-even or worse.
4 mistakes new real estate investors make infographic
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New House Flipper Mistake #1: Not Assembling Your Team

You might be a superstar, but flipping a property is a team sport. At the very least you’ll need a real estate agent to help you sell the finished product, a real estate attorney to protect you and ensure the transactions go smoothly, and of course a source of funding to allow you to leverage your capital. As we mentioned before, if your flip includes any rehabilitation to the property your team will also need a trusted general contractor who can do the work on time and on budget. Many real estate investors also benefit from having a trusted CPA on their team to advise them on the complex accounting sometimes involved in these deals, as well as an insurance agent that can guide them through the world of liability protection.

New House Flipper Mistake #2: Not Vetting The General Contractor

Unfortunately, sometimes things go wrong during the course of a property flip. After over 700 deals, what we’ve found is that the majority of issues new investors have during their first flip are the result of contractor issues. Delays, underestimation of costs, and generally unprofessional behavior are the most common source of headaches for new flippers. In order to counter this, we ask our borrowers to thoroughly vet their contractor and follow some best practices for selecting the right one to do the job.

  • Local real estate investor associations are a great place to find referrals for companies that others in your situation have already vetted.
  • Always see their work for yourself by physically visiting at least two of their projects in your area.
  • Get bids from a few contractors. This will not only give you a better opportunity to find the right fit, but give you a better idea of what your proposed scope of work should actually cost. Make sure to ask for an itemized scope of work.

New House Flipper Mistake #3: Not Staging The Home

Yes, hiring a professional service to stage your home increases your out of pocket expenses by around $1500 to $1800. However, like everything else about your deal – staging the home is an investment. On the surface, potential home buyers can more easily relate to a professionally staged home because it is not only clean, but decorated in a way that allows the buyer to imagine themselves living there.
The National Association Of Realtors polled their members and found that an incredible 96% of Realtors believe that staging has a positive impact on a potential buyer’s perception of the home. Additionally, studies prove that staged homes sell up to 2.5 times quicker than non-stages homes and for about 17% more. When you consider the costs saved from flipping the property quicker plus the higher sale price thanks to the improved perception of the property, home staging is an easy decision.

New House Flipper Mistake #4: Holding On Too Long

You probably do great work, and the value you’ve added to the property is incredible. However, this sense of pride and accomplishment new investors have regarding their first finished flip can sometimes cause unrealistic expectations for how much money they’ll sell it for. The truth is, the quicker you flip the property the better off you’ll be. Holding on to the property in hopes of a higher offer leads to an increase in soft costs; everything from interest expenses to taxes and utilities that will ultimately eat into the deal’s profit. Additionally, the quicker you flip the property the quicker you’re able to re-invest your money into the next deal.

Whether you’re new to real estate investing or simply looking to build your team and maximize your return on investment, Asset Based Lending would love to be your hard money lending partner. If you have a deal in mind, fill out our quick pre-qualification form and our loan officer in your area will reach out to discuss it with you.
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