Welcome to Bob Villa's Guide to Flip Your Home. In this series, we'll show you the best places to flip your home, important steps to take when choosing a property, must-make upgrades and repairs, and unexpected ways to cut costs to get the most profit from your home flip. Here, you'll find fresh insights, Bob's proven advice, hand-picked shopping guides, and tips on the right professionals to help you get your flip across the finish line.
Buying a home with the intent of fixing it up and reselling it in a short period of time is commonly referred to as house flipping. However, house flipping comes with significant financial risks that must be considered before jumping into the business without a budget, a plan, and a renovation team. While it is possible for the average house flipper to make a profit, there are some pitfalls to avoid if you want to do so. Read on for 8 house flipping mistakes you should absolutely avoid to stay profitable in house flipping.
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1. Failure to conduct pre-investment inspections and evaluations.
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Buying a home without assessing its location or having it inspected by a professional can lead to serious problems. A home next to train tracks, a sewage treatment plant, or right next to a slaughterhouse may look great on paper, but loud noises and unpleasant odors could scare off potential buyers.
An inspection can help identify major issues with your property, such as a collapsing foundation or a faulty plumbing system, that would take a lot of time and money to repair. Without this step, you wouldn't know about these additional costs until you start renovating.
2. Not understanding storage costs.
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Many home remodeling shows give viewers unrealistic timelines. Before you commit to buying a home, you need to be prepared to incur expenses until you can sell it. In most cases, buying, remodeling, and selling a home takes several months, so you need to know how much you'll be paying for taxes, insurance, utilities, HOA fees, and other miscellaneous expenses during this time.
Similarly, if you price your home too high when it's time to sell, you could end up owning it for much longer than you had planned. Before you put your property on the market, do your research and work with a real estate agent to determine the optimum price.
3. Estimate your budget as you go.
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The main goal of flipping a house is to make a profit that is worth the time and effort you put into buying, renovating, and selling the property. It can be fun to think about the possibility of flipping and even start talking to a real estate agent, but if you're spending more than you earn, you need to remember that this line of work is just an expensive hobby. Take the time to write out an actual budget of all your expenses and use these numbers to stay on track and avoid blowing your budget on expensive materials.
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4. Over-improving the property.
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Take a good look at the neighborhood the home is located in. Renovating an older home in a rundown neighborhood with an over-the-top addition that suits the upscale market could lower the selling price, because potential buyers aren't just evaluating the home, they're also evaluating the neighborhood.
If the neighborhood seems old, dated, and relatively inexpensive, you're not going to see much benefit from investing heavily in luxury features like heated floors, marble showers, a saltwater pool, etc. Instead, aim to make your home comparable to the top-selling homes in the area.
5. Attempting to complete a flip without an experienced team.
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One of the biggest mistakes people make is trying to do all of their home renovations on their own. While an experienced DIYer might be able to complete various renovation projects and keep costs down, it's important to remember that you'll still need to cover the costs of your home during this time. So you'll need to balance your schedule and budget and decide which projects you'll handle yourself and which tasks you'll hire a team of professionals to handle.
Also keep in mind that some renovations must be done by licensed professionals to be considered safe and receive a work permit. Having licensed electricians and plumbers who can make infrastructure upgrades and repairs is essential to the success of your renovation. Check your local regulations to see if you or your contractors need to be licensed in these areas to perform electrical or plumbing upgrades in your home.
6. Ignoring the garden.
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It's easy to get carried away with replacing floors, painting walls, installing new cabinets and remodeling bathrooms, but your yard is already your first impression of potential buyers before they even step inside to see those upgrades. The exterior of your home is an important consideration, as is maintaining the appearance of your side and back yards. If you plan to sell your home in the spring or summer, consider hiring a landscaper to plant flowers and spruce up your yard before you put it on the market. Even during the cooler months of the year, you'll still need to mow the lawn, rake leaves, trim hedges and shovel snow from walkways for future buyers.
7. Working without permission.
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While you don't necessarily need a permit for renovations around your home, if you need one and don't have one, code enforcement officers could be at your door, levying heavy fines and asking you to remove the renovations. Instead of taking that risk, work with your local permit office to apply for all the permits you need. If you're not sure how to navigate this process, consider hiring a team of licensed contractors to handle the permitting process for you.
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8. Ignore cosmetic modifications.
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Repairing cracked foundations, replacing aluminum wiring, and repairing holes in the roof are important tasks that most potential home buyers won't notice unless they're specifically looking for them. What they will notice are scratched paint, chipped light switch plates, and dented door handles. Don't forget to make small cosmetic repairs as well as important infrastructure repairs if you want to increase value and sell your home at a profitable price.