With property values on the rise nationwide, this is an excellent time to be in the real estate market. There are large numbers of distressed properties available with great potential for profit.
Buying, renovating and flipping properties is a lucrative approach to real estate, as long as the investor avoids three common mistakes.
Picking The Wrong Property
Even in a strong market, choosing the wrong property can result in little or no profit. Smart investors do their due diligence, in order to correctly predict where and when to buy a property and know how much to pay for it. Investors who fail to do this have been burned, by properties they thought were in up-and-coming neighborhoods, only to see house prices go south. Others have made the mistake of thinking that a house could be renovated and sold for $500,000+, when the average price for houses in the area is $400,000.
Another hazard of not doing enough research is discovering that a disruptive event is planned for the area, such as a major roadway or large development.
Spending Too Much On Renovations
Some of the most successful flippers are people in the construction business. They know which renovations are worth making and which to forgo. They have the skills to do the work for free or an experienced crew to do the job at cost. Investors who don't have this advantage can run into trouble. They may make unnecessary repairs or negotiate poorly for contractor services. If the investor failed to get a house inspection, they may face expensive surprises once work begins. Any of these factors could cause the project to go over budget.
Miscalculating Holding Time
It takes time and money to prepare a house for sale, and additional time to sell it. Miscalculating the holding time can lead to a poor return on investment. Holding costs will eat into profits. Plus, there's an opportunity cost to tying up money that would be better invested elsewhere.
An additional consideration here concerns buyers. A smart seller will require a potential buyer to be pre-approved for the loan before making an offer. Not doing so can be a costly mistake, because precious time may be wasted on a deal that ultimately falls through.