The 7 Deadly Sins Of House Flipping
If you want to learn to flip houses, make sure you know the deadly sins that will sink your project.
Unfortunately, you need more than heart to succeed in this field. You must aquire the proper understanding of the business so you don’t waste valuable of time and money, and ruin your reputation as a house flipper.
Emotion, while important in some ways, can often cause harm and prevent you from succeeding. You should use emotion to get yourself motivated at the start, but defer to your brain when dealing with most major decisions.
The 7 Deadly Sins
If you rely on your heart to lead your throughout your real estate venture, you might end up in a world of trouble.
Don’t fall victim to the 7 deadly sins of house flipping, unless you wish to be condemned to real estate investing hell—surrounded by bad credit, debts, and worthless properties.
Lust – Falling In Love With A Property
As an investor, you’ll spend a great deal of your time scoping out the many properties available, trying to find one that will work for a fix and flip.
That’s when you see it—the perfect house.
It’s in a great area with an acclaimed school district. It is rough looking but has great bones. And it has some unique features that could be utilized as selling points. You’ve finally found the perfect property.
However, maybe the seller isn’t willing to negotiate down to your MAO, or “maximum allowable offer”. But you want this house, even if you’ll have to pay more than 70% of the ARV. It’s worth it, right?
Wrong. You need to make sure to never buy a property you aren’t going to profit from. It doesn’t matter how appealing or ideal the house is. If you aren’t going to make money, than you aren’t going to make money.
Think with your head. Don’t get wooed by the siren song of a three bedroom, beachfront property with a two-car garage.
Pride – Doing Everything Yourself
Many new flippers have a fantasy of walking into a dilapidated house, knocking down a few walls, sweeping away the dust, and slapping on a new layer of paint. Good as new.
However, it is not nearly that simple. To tackle the rehab that comes with a flip is an incredibly heavy task. Even the most experienced contractors will have trouble doing it alone. Maybe you specialize in electrical work, but that still leaves out all of the other skill sets like plumbing, masonry and carpentry.
Additionally, you might help from people like interior designers, real estate brokers, or even lawyers.
Don’t find out three months into rehab that you weren’t the expert septic pumper that you had originally thought you were. There’s nothing worse than being up to your knees in unanticipated costs that bring you over budget.
Which brings us to our next sin…
Gluttony – Overspending On Rehab
Many real estate investors live by the saying “you’ve gotta’ spend money to make money”. While this rings true most of the time, there is a limitation to its usefulness.
When you are renovating your property, you don’t want to cheap out on improvements. If you do, the potential buyers will probably know.
However, you also need to make sure you don’t overspend. First of all, you don’t want to exceed your predetermined budget unless you absolutely need to. Otherwise you might run the risk of losing money on the project.
Secondly, the value of a house can reach its limit, no matter how many expensive improvements you make. If it’s in a lower income neighborhood, it can only sell for so much.
Don’t get carried away buying luxury items that aren’t going to make you any money on the back end.
Wrath – Getting Upset When Things Go Wrong
Sometime during your flip, whether it is during the buy, the rehab, or the sell, you will most likely run into an unforeseen problem.
Make sure that you don’t let your emotions get the better of you, and do something that you’ll regret.
For example, you might not be able to find the perfect property right away. Don’t get frustrated and buy a house that you won’t profit from. Instead, calm down and wait until you find the right fit.
Greed – Asking For Too Much Money
We all want to make money in this business, but sometimes an indirect approach is more successful than a direct one.
What I mean by this is, you’ll make more money in the end if your initial asking price on the property is somewhat reasonable. If it is much higher than any potential buyer in their right mind would pay for, you might lose the interest of some promising prospects.
You’ll end up having to re-price and relist the property, but by then it might be too late to get to the prime candidates. You’ll have to cater to the demands of a small few rather than lead a whole school of fish.
Envy – Trying To Get Rich Quick
Many gurus online and elsewhere try to preach the message of getting rich quick with just the snap of your fingers.
In reality, flipping houses takes a considerable amount of time and effort like anything else. If there really were hidden secrets that could make you a millionaire overnight, don’t you think everyone would be taking advantage of them?
When buying real estate, there really isn’t going to be one big property that’s going to earn you an insane amount of money and fix all your problems.
Instead, house flipping is a process. Your job is to optimize the chances of making the most money you can on each property. Once you get good at it and get some practice, you can work on multiple projects, and pull in a little bit of income from many different places.
Just don’t expect to look under your pillow when you wake up tomorrow and find a hundred thousand dollars and the keys to a brand new Beamer.
Sloth – Failing To Take Action
The most common problem for beginners is not starting the process at all. While educating yourself and preparing yourself is important, taking action is necessary.
There is always more information to learn and some of it can be picked up during the process.
Start by writing down exactly what you want to do and start completing the steps one by one to make it happen.
You’ll never become a house flipper from your couch.