Flipping houses if often glamorized on TV and is made to look easy, but in reality it can actually be very hard. In case you’re unfamiliar with the term, flipping a house means buying a piece of property that you don’t intend to use but sell it instead. Even though the profit margins can be very appealing in the world of house flipping, it’s a very risky business. Some people simply can’t keep up with its fast pace. However, if you find a way to think fast and recognize potential risks in any property, you’ll be able to make a lot of money.
If you’re just getting into this business, then you will need to be extremely careful. After all, just one mistake may cost you a big sum of money. In order to ensure that you make the right decisions, you should be aware of the common mistakes people make when flipping houses.
Getting the Math Wrong
You can’t afford to get the math wrong when you’re flipping houses, so it’s best to check your calculations at least three times. The first thing that you will need to determine and calculate is how much it’s going to cost you to do repairs and renovations. To do this, you will need to make a list of all the repairs that need to be done. Once you do that, you should figure out what the cost of those repairs will be, including the cost of hiring a good contractor and getting the materials.
Keep in mind that it’s also very important that you determine the after repair value of the property. This is the potential selling price of the house when all of the repairs get done. When you get that figured out, subtract the purchase price, monthly carrying costs, and repairs to see how much profit you can have.
Keep in mind that you’ll also spend a portion of the money on taxes. Before you make an investment, find out which taxes you need to pay after flipping a house. Remember that there is a way to pay less in taxes. More specifically, if you hold on to the property for more than a year, you’ll be paying long-term capital gains instead of short-term, which is a lower tax rate.
Not Getting a Home Inspection
Even if you’re an expert, you won’t be able to see all of the problems with a home on your own. This is exactly why you need to hire a home inspection. Instead of trying to save money on the small things, you should be focused on the long-term profits. Remember that sometimes home inspections may actually increase your profits. For example, if they find a lot of problems that the seller didn’t mention, you’ll be able to significantly bargain down the price of the property.
Not Having a Budget
Not having a budget can lead to many problems when you’re in real estate. The most common problem is that you fall in love with a property that you can’t afford. Even when you somehow manage to get the money to buy the house, you won’t have enough to finish the repairs. In order to avoid bad investments, you should come up with a budget and stick to it. In case you find a great home that doesn’t fit into your budget, simply continue searching.
Not Having a Reasonable Time Frame
Many people think that they’ll be able to sell a house overnight, since that’s what the house flipping shows on TV make this business look like. However, be prepared to deal with a lot of obstacles when repairing and selling the property. If you don’t have reasonable expectations, then you’ll just end up being disappointed and discouraged to continue being in real estate.
Doing Everything Yourself
Even if you know how to do a lot of repairs yourself, you should still leave it to the professionals. Although doing everything yourself can help you cut costs, remember that you want to hire someone who will do the job flawlessly.