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House flipping can be a very lucrative and rewarding
career path, but it takes hard work and determination to
be successful. Many first time house flippers jump head
first into their first flip without knowing the possible
pitfalls.
As seen on our hit TV show on A&E, Flipping Boston, we
know the ins and outs of flipping houses for a profit. Tohelp us
succeed, we developed a formula for flipping
houses that have brought us continued success in real
estate. Now, our Flipping Formula is used as the basis for
an educational program to help new house flippers and
real estate investors. This program helps people, just like
you, avoid painful mistakes and achieve success by
leveraging our knowledgebase.
Below you will find a series of seven common mistakes
that cost first time home flippers serious time and
money.
Mistake 1: Not knowing your marketIs the seller
motivatedRemember that the motivation of a seller outweighs
most
reasons to flip a home. Divorce, death and disease are
incredible motivators. Find people with a real estate
problem and solve it for them. Speed of execution is
what most challenged sellers are looking for. Dont waste
your time with tire kickers, your time is valuable, never
forget that and always remember Some Will, Some
Wont, So Whats Next? (SWSWSW Next)
What are the comparable list prices for theareaKnowing the true
after repair value (ARV) is critical.
Many new flippers will assume the retail sale price
without basing their assumption on facts. NEVER trust
your numbers without verifying them. Get multiple
realtors to give you comparable listing information
(comps) based on recent homes sold. The comps
should include house location, number of bedrooms and
bathrooms, house square footage and house finishes
information.
What are people looking for in a home in thismarketMany first
time flippers enter a new flip with guns blazing
and commit the sin of over rehabbing a property. Granite
countertops only increase the houses ARV in an area in
which granite is popular or expected. Likewise, stainless
steel appliances may be appealing to you, but are not
warranted in every flip. If determined that certain
features are appropriate, it is equally as important to
know how to add these selling features, or what we like
to call Bragging Rights, without breaking the budget.
As part of our Flipping Formula education program we
have actually developed systems to help real estate
investors master the art of achieving a high-end finish or
feature for very little cost.
How much will it cost to renovate the houseBefore paying for a
professional inspection and youreunder contract, you should do an
informal inspection of
the house. When you tour the home, take note of slopin
floors, buckling walls, water damage, etc. Actual
renovation costs will be determined by your contractor,
but its best to get a rough estimate of the costs of
rehabbing the home and fitting it with the markets
desired features and finishes to see if the ARV warrants
even attempting the flip.
Mistake 2: Choosing an inspector and/ocontractor based on
costaloneRemember: Quality and reputation are more important
than price.Getting the best InspectorFind a licensed home
inspector with a good reputation
to guide you through your property. Dont have some
amateur walk the house. A good inspector will find the
costly issues with the property. They know the difference
between a foundation issue and house settling. Youruncles
friends brother is not your best option here. The
best part of using a quality inspector is that they will
essentially be assembling the scope of work for you.
They will show you all the defects with the property and
will make it easier for you to get a bid to repair them.
Getting the best ContractorFind a contractor with a good
reputation and make sure
to get at least 3 bids. Dont always take the lowest bid
and make sure the scope of work is consistent for each
bidding contractor to make sure you are comparing
apples to apples.Mistake 3: Forgetting that houseflipping is a
businessFlipping houses can be very profitable, but it requires
regular time commitments. Flipping houses is not a get-
rich-quick scheme, it is a business and you should
conduct yourself in a manner befitting a business. It is
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paramount to plan, remain organized and stay focused
on the flip.
As your business grows, proper time management will be
vital to your success. If you do the same thing more that
3 times, a system will need to be created to support the
action.
Maintaining your business reputation should be of the
utmost concern. You are entering an arena where your
integrity is everything. Always do what you say you are
going to do and be of service to those around you.
Bankers, lenders, Realtors and attorneys are all watching
how you conduct your business.
Mistake 4: Not having an inner circleYour net worth will be a
direct correlation of your
network. The first-time-flipper who thinks they can do it
all alone is destined for failure. Youll need to assemble a
team of experts who know each aspect of flipping ahouse. (i.e.
General Contractor, Real Estate Lawyer,
Realtor, Mortgage Broker, Hard Money Lender, etc.)
Each team member should be rooting for your success
because when you win they win. Like they said in school,
there is no i in team.
Mistake 5: Not being prepared for theunexpectedRemember Murphys
Law: If it can go wrong, it will go
wrong, at the worst possible moment.
To cover this, add 10% of the ARV to your expected
costs to account for any unplanned expenses. If at some
point you need these fundsyoull have themif you
dont, your profit will be greater.
Also, Dont get hung up over scheduling delays. Its
important to watch the clock but accept that things will
go bad on occasion. Make sure to have a contingency
plan or have extra time factored into your planning so
you can overcome problems. Just because the contractor
said they could finish in 3 weeks doesnt mean they will.A great
way to keep everything moving in the right
direction is to offer bonuses to your contractor when they
complete projects on time and on budget.
Mistake 6: Not investing money in theperceived value areas of
thehome.Forgetting curb appeal. Drive by is a real estate term that
is forgotten way too
often. They have to love it from the street before you ca
wow them with the interiors. Budget for exterior curb
appeal from the beginning; dont make it a whatever
line item at the end of the flip.
Kitchen and Bathroom upgrades braggingrights)If we have to
document here how important the kitchen
and bathroom are to a retail buyer, maybe you shouldjust go sell
Amway products. The kitchen and bathroom
of the home will either make you rich or cause you to
loose cash. As part of our formula, we can show you how
to make a budgeted makeover look like youve spent
tens of thousands of dollars and consequently sell faster
than your competition. P.S. You only get paid when you
SELL the house.
Mistake 7: Getting too emotionallyinvolved in the houseEveryone
enjoys making a house a home, but remembe
this wont be your home.
Dont decorate the house according to your personal
taste. Instead, make the house ready for new owners to
move in. Just because your favorite color is pink, doesn
mean your buyers would agree. Better yet, dont choose
appliances or features that youre attracted to versus
what buyers in your market are expecting. Again, just
because you want it doesnt mean you should spend
money on Subzero appliances and 10-burner Viking
stoves.
While our deals are bought based purely on the
numbers, we create an emotional transaction for our
buyers because we know what our buyers are looking fo
They know that buyers want to be proud of their home
and to that extent, elements that serve as bragging righ
sells houses.
Finally, NEVER fall in love with a house youre going to
potentially flip. You must have the discipline to walk awa
from a deal. The decision to pursue a deal or not should
always be based on cold hard numbers. Simply put, thenumbers
never lie. They will tell you if a flip is worth it or
not.
For more information on The Flipping Formula
created by the stars of A&Es Flipping Boston,
please visit www.citylighthomes.com
