With a dynamic supply of attractive and affordable properties on the market, you may feel eager to get your feet wet in the lucrative industry of house flipping. However, be warned: Novice house flippers encounter pitfalls that can kill their profits — even costing them thousands of dollars. If you’re serious about becoming a real estate investor, you need to have a strategic business plan.
Here are four profit-killing mistakes new house flippers commonly make (and how to avoid them).
1. Not Putting Together a Team
It takes a village to flip a home. As a new investor, you need the expertise of various professionals in this industry. Don’t go solo and haphazardly make offers on properties without doing your homework. Instead, organize a crew that specializes in these essential fields:
A real estate agent: Using the same experienced real estate agent for buying and selling gives you an immense advantage. Not only does your agent know how to negotiate the best terms and deals, he or she knows which properties are worth your time and which could be lemons. Real estate agents also save you time during the contract phase and can get you out of common transactional issues such as difficult sellers and uneven contract terms — making them well worth the fees.
A contractor: A great contractor will regularly give you great rates for the steady (and high-quality) work.
A home inspector: This is one of the most important parts of your team. Here's why: If you can inspect the property before you buy it, inspect it. Key problems involving the foundation, mold and roof could become too expensive to fix and eat away at your profits after listing. The cheaper properties on the market will most likely be distressed properties (e.g., short sales and foreclosures), which sometimes don't allow home inspections. However, if you can get the house inspected, never skip this step.
A title agency: Closing with the same legal team will help make the process streamlined. When you flip to sell, you'll be at the closing table a lot. You might as well do settlements with people you can trust!
A marketing assistant: As your team grows and your profits climb, you should invest in at least some part-time marketing help. Marketing online is more crucial than ever. You'll need to plan open houses, update online listings, create brochures and more. Outsourcing this work will save you time.
2. Not Vetting the General Contractor
A common problem that novice flippers have is choosing a contractor. If you pick just any run-of-the-mill "handyman," this can put a real damper on your profits from a combination of these issues:
The right contractor will consistently do great work on time and at the right price. When you don't get what you're paying for or are paying too much for what you're getting, you have a bad deal that can kill your profits.
3. Not Staging
The Internet is everything these days. Thus, if the photos of your online listings are murky and unflattering, expect to generate little to no interest in them. If buyers can’t envision themselves in the space, they'll quickly swipe to the right and move to the next listing.
Marketing is important in our digital culture where visual content is king. In fact, in the real estate world, staged homes sell up to two-and-a-half times more quickly and get sold at 17 percent higher rates than non-staged homes.
4. Holding Too Long
Vacancy is your enemy. Repeat: Vacancy is your enemy. When flipping homes, you must aim to sell or rent as soon as possible. When your property is unoccupied, guess who’s paying the electric, gas, water, property taxes and other charges? You! Every month that you don’t sell is burning a hole in your pocket.
Flip Like a Winner
Friends don't let friends flip alone! It's important to work with professionals — no matter how long you've been flipping. As you venture into home flipping, knowing that it takes a village to get the job done well is half the battle. Assembling the right contractors, home inspectors, marketers, settlement companies and real estate agents will get you through plenty of situations that would be difficult to manage by yourself.
Author bio: Eric Krattenstein’s extensive marketing experience began at a boutique marketing agency where he developed dozens of successful innovative marketing strategies for brands ranging from startups to Fortune 500s. Prior to joining Asset Based Lending in 2016, Krattenstein served as U.S. Chief Marketing Officer for a European enterprise software company where he spearheaded the company’s expansion into the United States and Canadian markets. In his current role as Chief Marketing Officer, Krattenstein leads Asset Based Lending’s Sales and Marketing team that helps upward of 40 to 50 real estate investors close hard money loans each month.