1. Paying too much for the property - Just because you want it, doesnâ€™t mean that itâ€™s going to make a profit. Leave your ego behind and put that wallet in check.
2. Do what you know and have some control over - You are going to be the boss, the Jefe. Make sure you feel good about giving clear and specific orders. Be ready to deal with people who are going to promise the world. They need to be able to duplicate your thoughts. Ask a lot of questions and try to avoid people who donâ€™t like to help.
3. You want to build a flip house the way you would want it to be if you lived there. The only time you should build for you is when you are going to live in it for two years. If thatâ€™s not the case, then go neutral, nice, trendy and cute. If you donâ€™t understand what that is, then turn on the HGTV and start watching.
4. Not hiring a realtor to sell it when you are done. You do this because itâ€™s the safest way to make sure it sells for the highest dollar and so that have time to find the next sweet deal.
5. Failure to understand how much things are selling for in the neighborhood â€“ If you had a realtor that was any good, youâ€™d know this.
6. Spending too much on the repairs to the property â€“ In this flip game, every contractor wants to up sell you. They are going to say â€œitâ€™s cheaper if you do it nowâ€, etc. Well theyâ€™re right, but with the wrong intentions. They donâ€™t understand that you have to leave something for the new buyers to improve and call it home. They also donâ€™t understand that you have to get out of the property as soon as humanly possible. Know when to stop and when to say no.
7. Focusing â€œeverywhereâ€ instead of where you â€œknowâ€ â€“ Specialize. Be the King or Queen of something you know better than most. That way, you never have to know if you are paying to much or how much is enough to spend to get the price you want.
8. Choosing a realtor that doesnâ€™t specialize in flipping properties â€“ It probably doesnâ€™t surprise you that 20% of all realtors do 80% of the business. Know who they are.
9. Focusing on Foreclosures â€“ I personally think everyone who drops this â€œf â€“ wordâ€ instantly goes to the AFC category. Why? Because everyone wants to get a deal and when they see that f-word, it drives a mad selling frenzy. There are several â€œbuy foreclosuresâ€ TV ads going so why would you think that getting 20-30 people bidding on the same property is going to get you a great deal. True story â€“ Guy with 750 credit score dropped 15 offers in a row with 20% down for government foreclosures at above market price. Each one had more than 5 offers on the property the first day it was on the market. All they did was drive up the price which was at market value to begin with. To make matters worse, depending on the bank owner, they wonâ€™t give you a response for a month whether you get it or not. His f-word record 0-15. He now uses another Perry approved system. Perryâ€™s rule - The only way you make money in foreclosures is to contact the bank directly and become best friends with the REO manager. Then you get them before they see the market. I have at least 5 other ways to make better use of your time and get better deals. Weâ€™ll save that for another time.
10. Failure to have a system with a definitive exit strategy â€“ You must have a best case and worse case scenario when doing a flip. Not just how much, but what happens if it doesnâ€™t sell. My recommendation is to assume that it wonâ€™t sell for the highest price until next year so it better cash flow while itâ€™s rented. Others have a â€œdump itâ€ price and a â€œbest case priceâ€. If you have one of those strategies, then make sure your realtor has an in house rental department and a handful (I mean 50-60) of investors waiting to buy it at the â€œdump itâ€ price. Also, keep consistent with colors, tile selections and finish outs. That way you have some history of success and know what is selling. You also have the added benefit of the â€œsystemâ€ of a standard flip build out when you think like this. Your contractors will always know what color is on the walls and the tile on the floor. Itâ€™s a good way for saving money as the next house can use your leftovers from the prior project.
Yes, you can still make money off a flip in this market. Being a Realtor you are already ahead of the game. Just do ALL your homework first, find a great team to work for you that is reliable.
All the best!
The problem with contractors and Angie's list in regards to flipping is "time is money". Any contractor really good is not going to be available or affordable. I had an expensive retail contractor come give me an estimate before we even had a valid offer to buy contract on the home. This gave me a worst case scenario. After we had a contract, I had three building industry contractor recommendations come look. These people were good quality and good prices and therefore busy. It was almost two months before I could even get estimates from them. After a month of getting nervous, I contacted three Angie's list contractors. If they were good, I would have to wait 3 months just for them to start the job. I ended up having to start on my own, getting some subcontractors working until I finished round three of interviewing General Contractors. Some of your best quality workers will just disappear sometimes because someone offered them more money. It is ugly and stressful. I like the online video game a lot.
As far as tradesmen, whenever I don't personally have someone I turst I go to other agents in my office to see who they can recommend, and I always end up with reputable people.
I had to close down my children's party business to babysit the contractors rehabbing our investment property. I was lucky to KNOW enough from doing the work myself in previous homes to correct problems before and after they occurred. I was also lucky the contractors showed up to work and completed the job. With the knowledge I have, I would have made more money as an agent earning commissions on the transactions than on the "profit" from doing the work.
Would you spend months working with a client not knowing if they were really going to buy or sell and whether you would get paid? As the saying goes, "it's a case by case basis" and "the greater the profit, the greater the risk."