Investing in real estate to sell can be quite lucrative, if done correctly. It is easy, however, to become trigger-happy at the prospect of making money quickly and to make critical missteps in the process. Below are several blunders to avoid if you’re set on flipping properties for profit.
Not Doing Your Homework
First of all, flipping real estate for real profit takes time, a lot of which takes place in the research stage. Not only should you ask everything imaginable about the specific infrastructure of a home and its neighborhood, you need to both dig into the home’s past and anticipate the state of the home and surrounding area long-term. Find out why the homeowners are selling and after how long. Are the owners relocating for a job, for example, or are they leaving because of problems in town? What did they pay for the home and when? Look into the trajectory of the neighborhood and consider how much and what kind of development is happening. If the property is nearby a commercial site, how long will construction go on? Look into whether the house has permit or zoning issues that will need to be addressed and whether or not it has problems that may not be immediately apparent (e.g. it is in a flood zone or predisposed to a termite issue). Long story short: make your decision to purchase a property after leaving absolute no stone unturned in the research process.
Doing Everything Solo
Many buyers assume that investing in properties requires less outside assistance, since the properties will ultimately be re-sold. This is not the case. If you are buying to flip, you will still need an outstanding real estate agent, inspector, maintenance person, and insurance agent. Moreover, invest in an excellent attorney who can help advise you about any current or potential legal issues with the property and who can serve as your advocate in the process.
Making Financial Mistakes
When it comes to buying and flipping properties, there are three common mistakes on the financial front:
Overpaying – Anxious buyers tend to overbid. Take the time (again!) to research what comparable homes in the same area have been listed and sold for and then bid accordingly. Bid low to start, and consider investing in a broker or real estate agent’s assistance in determining the correct bid and final offer.
Receiving bad financing – Many buyers end up getting interest-only or variable loans but end up subject to rising interest rates. Make sure to secure a loan that gives you the financial flexibility to make your payment if rates do indeed go up. You can also look into the ability to change to a fixed-rate mortgage later down the line.
Underestimating costs – Make sure to determine ALL costs prior to purchasing. This includes everything from routine maintenance, structural repairs (immediate or down the line), taxes, etc. Failing to budget exactly what a home will cost before selling it can result in significant financial loss.