4 Major Money Mistakes House-Flippers Make On Their First Investment

4 Major Money Mistakes House-Flippers Make On Their First Investment

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4 Major Money Mistakes House-Flippers Make On Their First Investment

There are many people who are making large amounts of money flipping houses.  People love watching television shows crafted after this business and many want to take the leap for themselves.  While it can bring in a huge profit when done correctly, it can also be a huge disappointment.

To avoid major disappointments pay attention to these four money mistakes that home-flippers encounter when first getting started.

Taking Years To Sell

The first home sale is scary.  Many home-flippers spend too much time thinking about renovations and waiting out the market.  To make money, the house-flipping business needs to be quick. Fix a home and sell it as soon as possible to make maximum profits.  Otherwise, the investor is simply sitting on their profits when they could be working on their next investment.

When first starting with house-flipping it is not likely the investor has a pile of leftover money once they buy a property.  If all of their investment funds are sitting on one property there is no way for them to make a second investment. They need to sell, make a profit, and invest again.  

Fixing Too Much

This house is not going to be one the investor lives in.  Many investors get caught up in their first house-flip and agonize over every last detail.  In the end, so long as the home is significantly better than what it started as there will be a buyer who wants it.  Renovations are a good way to draw in buyers but do not dwell on the small decisions. If the new owners hate something about the house they are going to pay to fix it.

It also best to choose to make repairs over renovations.  Trying to sell a house that is falling apart is only viable if selling to another investor.  People like to see their homes with a good foundation, roof, and structure. If the basics are not there the buyers are going to walk.

You also want to be careful that you do not over-renovate.  To prevent this, start by looking at comparable sales in the neighborhood.  Overshooting a renovation and becoming the best home on the block can actually hurt a home-flippers chance to sell.  

Few people want to buy the best house at top dollar.  They would rather buy a good house at a reasonable price.

Spending Every Last Dime

Investing every last dollar to simply buy the property is going to lead to trouble.  Even if a home-flipper thinks they are going to do all of the repairs themselves they will still need to invest in materials.  

Be prepared as there are always problems that come up that the investor did not plan for.  Always have an emergency fund for when something bad pops up.

This emergency fund should cover the costs of repairs and renovations twice.  This ensures that the investor will be able to get the job done without stalling out on the project.  There should also be money set back for the mortgage on the house, taxes, insurance, and closing fees.  Falling behind on any payments while trying to sell is not going to make the process easy.

Pricing Too High

Of course, every investor wants to make a huge profit on their investments.  However, simply pricing a home at a higher amount is not going to convince buyers that it is worth that much more.  Pricing competitively with the houses on the market is going to be an investor’s best trick.

Buyers want to compare similar homes and similar prices.  Keeping a higher price on a house that is simply not worth it will only leave it sitting on the market.

Investors should not be discouraged when thinking about the challenges of house-flipping.  It is a process that does take a lot of work, time, and money though. Anyone who thinks it is going to be a get rich quick scheme is going to be sorely disappointed.  Get an emergency fund prepared, focus on only fixing the necessities, price competitively, and do not hang on to the property too long.

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