5 Mistakes That Make House Flipping A Flop

AAA

House flipping has become the day trading of the 2000s. But in the rush to make a profit, far too many would-be real estate moguls overlook the basics and end up failing. Like any other business venture, flipping requires time, money, patience, skill, and it will definitely wind up being more difficult than you imagined. In this article we'll look at the five biggest mistakes investors make in this market and how to avoid them.

1. Not Enough Money

Dabbling in real estate is an expensive proposition. The first expense is the property acquisition cost. While low/no money down financing claims abound, finding these deals from a legitimate vendor is easier said than done. Also, if you're financing the acquisition, that means you're paying interest. Although the interest on borrowed money is tax deductible, it is not a 100% deduction. If you plan to fix the house up and sell it for a profit, the sale price must exceed the combined cost of acquisition, the cost of holding the property and the cost of renovations. Even if you manage to overcome these hurdles, don't forget about capital gains taxes, which will chip away at your profit.

2. Not Enough Time

Renovating and flipping houses is a time consuming business venture. It can take months to find and buy the right property. Once you own the house, you'll need to invest time to fix it up. Before you can sell it, you'll need to schedule inspections to make sure the property complies with applicable building codes. If it doesn't, you need to spend more time and money to bring it up to par. Next, you'll need to invest time to sell the property. If you show it to prospective buyers yourself, you'll spend plenty of time commuting to and from the property and meeting with potential buyers.

3. Not Enough Skills

Professional builders and skilled professionals, such as carpenters and plumbers, often flip houses as a sideline to their regular jobs. They have the knowledge, skills and experience to find and fix a house. Some of them also have union jobs that provide unemployment checks all winter long while they work on their side projects.

The real money in house flipping comes from sweat equity. If you're handy with a hammer, enjoy laying carpet, can hang drywall, roof a house and install a kitchen sink, you've got the skills to flip a house. On the other hand, if you've got to pay a professional to do all of this work, the odds of making a profit on your investment will be dramatically reduced.


4. Not Enough Knowledge

To be successful, you need to be able to pick the right property, in the right location, at the right price. In a neighborhood of $100,000 homes, do you really expect to buy at $60,000 and sell at $200,000? The market is far too efficient for that to occur on a frequent basis.

Even if you get the deal of a lifetime, you need to know which renovations to make and which to skip. You also need to understand the applicable tax laws and know when to cut your losses and get out before your project becomes a money pit.

5. Not Enough Patience

Professionals take their time and wait for the right property. Novices rush out and hire the first contractor that makes a bid to address work they can't do themselves. Professionals either do the work themselves, or rely on a network of pre-arranged, reliable contractors. Novices hire a realtor to help sell the house. Professionals rely on "for sale by owner" efforts to minimize their costs and maximize profits. Novices expect to rush through the process, slap on a coat of paint and earn a fortune. Professionals understand that buying and selling houses takes time and that the profit margins are sometimes slim.
  1. No results found.
Related Articles
  1. Investing

    5 Mistakes That Make House Flipping a Flop

    If you're just looking to get rich quick by flipping a house, you could end up in the poorhouse. Be sure to avoid these mistakes.
  2. Investing

    Too Frothy? Home Flipping at 10-Year High

    Years after the housing market crash, home flipping has reached a 10-year high. Why that might not be the best signal.
  3. Investing

    5 Mistakes Real Estate Investors Should Avoid

    Don't let a slow real estate market drag you down - steer clear of these pitfalls.
  4. Investing

    Top 8 House-Hunting Mistakes

    These common mistakes occur when you allow your emotions to take over.
  5. Financial Advisor

    5 Biggest Money Mistakes & How To Fix Them Fast

    Financial mistakes - like most mistakes in life - can generally be avoided with forethought, planning and self-discipline.
  6. Trading

    How Elite Traders Learn From Their Mistakes

    What distinguishes a good trader from a mediocre one is his or her ability to learn from mistakes and use the experience to avoid making the same errors again.
  7. Taxes

    3 Big Financial Mistakes to Avoid in 2016

    Here's how to avoid these three big and costly financial mistakes in 2016.
  8. Investing

    Flipping Houses: Is It Better Than Buy and Hold?

    Real estate investors can flip a property or use it for cash flow. Find out which will work in your neck of the woods.
  9. Investing

    5 Ways an Open House Can Actually Hurt Your Home Sale

    Open houses have long been a way to get exposure for a home that's up for sale. But it turns out it may be more trouble than it is worth.
  10. Investing

    Selling Your House? Avoid These Mistakes

    Don't put the sale of your home at risk by committing one of these dirty deeds.
Hot Definitions
  1. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
  2. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  3. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  5. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  6. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
Trading Center