House Flipping 101

The 5 Mistakes Newbies Make

House flipping has become a significant trend in the world of real estate development. Savvy investors are seeking opportunities to take rundown homes and flip them for a profit. Reality television makes this look like a quick and easy way to make a profit, . but there are many mistakes a newbie can make. House flipping requires the right amount of knowledge to avoid the pitfalls of ending up with a property you can't sell and one you never should have purchased in the first place. Here's a look at five of the most common mistakes rookie house flippers make.

Poor Planning Most people think that house flipping is easy. That line of thinking can get you in a lot of trouble out the gate. Simply winging can lead to instant failure. While there is flexibility with creativity with problems that arise, you still a strategic course of action. This plan will include, a detailed list of renovations needed, a budget, and timeline for completion. Poor planning can sink a budget quickly.

Neglecting the 70% Rule In house flipping, the 70% Rule, if appropriately used, can make you money. This basic rule of thumb states that you should not spend more than 70% of the ARV, or "after repair value" on a property. Many beginners make the mistake of allowing emotion to take over and bend to the seller's will. By doing your math, you can set and stick to a "maximum allowable offer."

Underestimating Costs This is another common mistake made by beginners. The last thing you need is to run out of money right before your project is finished, forcing you to shut down the whole operation. For this reason, you will want to create a budget that will cover all the needed renovations. You'll also want to leave room in the budget for any worst case scenarios. It is possible for something unpredictable to happen, so you want to be prepared to cover any costs that come with it.

Working Alone Many people look at house flipping as taking an old home, remodeling it and selling it for a profit. This idea sounds very simple on paper. However, the reality is, it's not that easy. If you aren't a professional, it may be useful for you to hire contractors to perform most of the heavy labor for you. If you are new to flipping houses, talk to professionals. They can help guide you along the way and increase your chances for success as well as helping you to avoid going over your budget.

Ignoring External Factors There are many external factors that you should consider when house flipping. Turning a blind eye to them can shut you down completely. You want to be aware of the neighborhood where you are looking to flip. It will be challenging to sell a home in an undesirable area. Are the home values within your range? School districts play a large part in the desirability of a home. You also want to keep in mind of any city and state ordinances. Failing to follow these to the letter could lead to a significant fee.

With the right research and planning, you can flip a house you'll be proud of.