Are you thinking about investing in real estate by flipping houses? Today we sit down with M1 Home Buyers own Mike Aziz for some advice on what to watch out for when buying a property to flip. Here are the most expensive blunders that house flippers tend to make when house flipping in Metro Detroit…
Flipping real estate can be highly lucrative… if you do it right. However, if you don’t do it right then it could end up costing you a lot of money, time, and frustration. M1 Home Buyers has got you covered! We’re sharing common mistakes investors make when house flipping in Metro Detroit so you can avoid these blunders and improve the return on your investment.
Expect the Unexpected
If there’s one thing that every flipper learns pretty quickly it’s that you can never prepare for everything 100% of the time. Brand new flippers often forget to “expect the unexpected.” For example, you can look at a property, assume it looks great, and then discover that there are termites. Or you might tear up a carpet and find mold. While troublesome, these problems aren’t the end of the world but for investors who aren’t prepared for them, they can be a costly shock. So avoid this mistake by anticipating additional problems into your project plan, timeline, and budget.
Hire the Right Contractors
Another mistake flippers make is to hire the cheapest labor possible. Rather than hire qualified professionals, flippers try to pad their profits by hiring any warm body. The problem is: cheap labor can actually be more expensive because they take longer and their work is not always up to the right standards (so it may need to be redone). Avoid this problem by hiring licensed, experienced tradespeople.
M1 Home Buyers own Mike Aziz has some first-hand advice to give about finding the right contractor. “Get references.” he says, “Make sure that you see other jobs that they’ve done, and make sure that they have the proper insurance coverage.” The money you spend hiring the right contractor could end up saving you time, money and headaches if you have to hire someone to do it over.
“If they don’t have their own transportation… that’s a huge red flag.” laughs Mike. “I’m not even kidding. I had one guy that needed me to give him an advance on pay to buy him tools every time we went to Home Depot for supplies. I was essentially paying him with tools!”
You may spend more time interviewing up-front, and may pay a higher rate, but the work will be done quickly and correctly the first time.
Don’t Get Emotionally Involved
This is the problem that flippers are simply not even aware that it happens, but it does happen! It’s easy to become emotionally involved in the flip to the point where you forget that you are investing in a property for someone… and often what happens is that the flipper starts making renovation and decoration choices that THEY prefer (versus decisions that are cost-effective and will help to sell the properly quickly). To avoid this mistake, set a firm renovation and decoration budget and continually remind yourself that your goal is to create a house that can be sold at maximum profit.
Understand Your Opportunity Cost
Newbie flippers acquire a house and do all the heavy lifting to fix up the property, and then they make the mistake of assuming that the sale of the property will be easy. In some markets it might be easy but in other markets that’s not the case! Avoid underestimating the effort required to sell and instead, prepare yourself for investing some additional effort in finding buyers.
Have Multiple Exit Strategies
Have a fallback exit strategy in case your flip sits on the market too long. “As soon as you walk through the property you have an idea of what your rehab cost will be, but always analyze the property from several angles.” says Mike. “If it spends too many days on the market, could you pivot and decide to rent it? Would you consider a land contract or seller financing as a way to get your money out?” Thinking about these angles will help you make a realistic offer when you purchase the property.
Know Your Market
“Be sure you know your market. Here in Metro Detroit, almost all houses have basements. A house on a slab will not sell for the same price as a house with a basement. If you buy a house to flip, and it doesn’t have the features that a potential buyer expects, you may have a hard time selling it.”
Summary
Flipping houses can be fun and profitable… or it can be frustrating and problematic. But you can make sure it’s fun and profitable by avoiding these common mistakes investors make when house flipping in Metro Detroit.