Do This And You Will Lose Your House Flipping Profits
Every newbie house flipper has big expectations while getting into the business. But truth be told; some of the strategies they use guarantee they will lose their house flipping profits.
Of course, your gut feeling can lie to you if your experience is not good enough to initiate a sound judgement. And perhaps that’s the main reason why it’s necessary for you to rely on house flipping teams for a smooth walk through over all the puzzling phases of house flipping.
And not only will the team give you a better head start, it will also help you to purchase valuable properties all the time.
A Sure Way Of Losing House Flipping Profits
Flipping Houses With OPE (Other People’s Experience)
The biggest strategy that new investors use to flip houses without incurring losses is what investors call OPE or Other People’s Experience. And usually, such an experience is critical when you’re trying to sell your rehabbed property for the first time.
Even though many professional house flippers prefer selling their flips on their own, it’s always advisable to hire a real estate agent. Of course, these agents will demand their commission, but there are a number of benefits that comes with hiring one.
One, agents may help you to sell your house really quickly, thus enhancing the amount of profit you make in the long run. See, real estate agents earn when he they get someone to buy your properties. They are focused on that single task and have therefore hoarded all the necessary resources that connect them to potential buyers.
Two, your time and energy can be directed elsewhere as you assign such a task to real professionals. As such, you can use your time to network or to control your next house flip instead of focusing on what you’ve already completed.
More importantly, you’ll need a real estate agent to help you conduct a market analysis on the property that you’re planning to sell. In this analysis, your real estate agent will use several MLS or Multi Listing Service to compare the rates and the amounts at which different properties have been selling in the area.
Once the analysis has been conducted in a competitive market, their outcomes can actually be divided into two:
1. A property value that’s greater than the original ARV (After Repair Value).
2. A property value that’s lower than the original ARV.
Needless to say, the property value that’s greater than the original ARV is the most preferable outcome. In case the second scenario occurs, your only cushion will be the 70% rule you used to acquire the property.
Another obvious reason why it’s advisable to flip and sell properties as quickly as you can is to avoid getting caught in a downward market condition. On top of that, selling your properties really fast lowers your soft costs, as well.
Now here’s the trick: If the market analysis registers a value that’s lower than your APV, don’t panic. This is where OPE comes handy; don’t ignore the data and instead burry your head in sand. Why?
Well, the main reason why you’re in this type of business is to make money, but if you’re thinking that listing your property at a higher price than the on-going market value will actually help you attain that; then you’re dead wrong. In fact, that will only lengthen the period that the property is supposed to sell. As a result, your soft costs will begin to consume your profit margins really quickly, and eventually land you into major losses or extra costs.
In short, the longer you hold onto your real estate property, the higher the carrying costs and the lower the profit margins. To help you understand what the aforementioned statement means, here’s a case study that explains everything:
Let’s say you originally acquired a property that cost you $200, 000. If the money that you used to buy the property came from a loan that charged you an interest rate of 10%, then here are your charges as time goes:
After 6 months, your interest will have amounted to $10, 000.
After 9 months, your interest will have accumulated to $15, 000.
After a year, your accumulated interest will have amounted to $20, 000.
Now from this illustration, you can clearly see how holding your property longer increases the carrying costs. And if we can factor in other costs like insurance, real estate taxes, maintenance, utilities and bills, then it’s pretty obvious that holding onto your property longer is actually not a good idea.
To conclude, both newbie investors and those who have been doing the business for years should always use OPE and a set of other professional judgements to stay on the safe side of business. At first, this may seem like a difficult lesson to take, but the more you stay in business, there more experienced you become.
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