Expect The Best And Prepare For The Worst In House Flipping Deals

A solid cost projection is one of the most important things that you have to establish if you want your house flipping deals to succeed.

house flipping deals

photo credit: Mukumbura via photopin cc

One of the biggest costs you will incur for the entire project, other than purchasing the property, would be expenses. If you become too casual in how you handle your financial projections, you will land yourself in big trouble.

Murphy’s law states that “whatever can go wrong, will go wrong.

Murphy’s law applies not only to many areas of our lives but it also applies to house flipping. You can handle Murphy’s law by expecting, anticipating and planning.

Time Is Not Your Friend

When flipping houses, you should try as much as possible to

accurately estimate your holding time. The longer you hold on to property, the higher your chances are of not making a huge profit. Soft finance costs will slowly eat your profits. If you find that you have to be too aggressive in your projection to make it work, then perhaps that particular house flipping deal wasn’t meant to be.

How Murphy’s Law Applies To House Flipping Deals

So you have found and bought a house that you plan to fix and flip. You have a great house flipping team, ready to start working immediately and you are confident that everything will be completed in four months.

My guess is that you have not factored in Murphy’s law and your time frame could be too small.

Many things can go wrong in house flipping and it has everything to do with Murphy’s law. With every project, you might face unexpected repairs, environmental issues, hold ups at the building department, and so on. Such unforeseen issues can throw off your projections by several weeks.

You Can’t Control Everything

Putting together a strong house flipping team is crucial for success but it is impossible for them or even you to predict and control everything. Sometimes, issues come up that you simply cannot control.

It’s part of the business and the best thing that you can do is to expect, anticipate and plan for the unforeseen. Get ready for anything that may happen while rehabbing the house and plan for it.

In case things go south, how will you go about handling the situation to ensure that you still lock in profits?

Banks Are Total Time Wasters

You may not take out a loan to rehab your project but chances are very high that your buyer will. If this is the case (most of the time it is), then you should expect to spend a lot of time waiting for the banks to process funds.

In some cases, you have to wait several days or even weeks for a single signature or a crucial document may get lost in the transaction and you have to wait for it to be found.

The most frustrating part is that you cannot simply storm into the bank and order them to hasten the process. You just have to wait it out and factor such issues into your projections.

It’s Better To Over-project Than To Under-project

For instance, you should project a flip to take about eight months for it to be completed but still aim to finish it in four months. Run your numbers as if you were to hold the property for those eight months and if they work, go for it. If they don’t, there are many other deals that you can go for.

Make sure you use Murphy’s law to see house flipping deals through and turn in bigger profits. As a rule of thumb, you should expect the best and prepare for the worst.

I’d love to know what you think of Murphy’s law and house flipping deals. I’m also open to any questions you have on house flipping.

smarter is better for HFS

Mike LaCava

I'm a full time real estate investor, proud Dad and husband. My team and I are working to restore communities - one house at a time. House Flipping School is my way of sharing this vision with other investors who want to do good for their community, and make money flipping houses.

  • Mike Little says:

    I have flipped 1 house and expect to flip another this year. What marks the difference. In investor and flipper to the IRS? Thanks, I am considering multiple flips if it is tax advantageous. I made $30K on my first and expect $25K on second. I am trying to supplement t my retirement with minimal impact to SS. I had to pay on 50 percent of the SS this year. Thanks for any advise. Mike

    • Michael says:

      Hello Mike – Sorry I overlooked your comment. Everyone’s tax situation is different so I can’t offer you any tax advice and it is a complex subject. Many CPA’s may have different answers to strategies so check around and get different opinions and work with a CPA that understands your business and works with other investors to implement tax strategies that will save you money. All the best!

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