We’ve all seen one or two of those TV shows where the energetic couple buy a falling down dump of a house, then transform it into a one-of-a-kind architectural masterpiece. They buy it for $5.99, then sell it for $2.1 million. And the whole time, we’re sitting there thinking, “I could do that.”
Welcome to the day trading of the 21st century: house flipping. The TV shows are interesting to watch but the real world of investing in house flipping takes a lot of hard work, a lot of money to invest, an eye for the local market, and a good dose of luck. Too many would-be real estate moguls skip over the basics, says real estate investment expert Sky Mikesell, and jump on in and then end up drowning.
Here’s a few common mistakes that you should avoid if you’re thinking of being the next millionaire house flipping mogul:
1. Lack of money at the start: Real estate is not cheap. If you’re going to flip a house, the first thing you have to do is acquire the property. You can take a chance on low or no money down schemes, or you can go with a legitimate vendor. You’ll need money to put down on the property, and you’ll need money to do the actual renovations. All of this needs to be factored in at the beginning because your projected sale price has to exceed the combined cost of all of these. Your goal is to make a profit, not let it all be eaten up in capital gains taxes.
2. Lack of time: Buying, renovating and flipping a house is time consuming. It can take months just to find the right property. Once you own the property, now you have to invest time and more money into renovating it. Then it will take time to sell it. If you’re needing an immediate return on your investment, flipping a house may not be the right business venture for you.
3. Lack of skills: When you’re flipping houses, the real money comes from “sweat equity.” If you want to really have a shot at serious profit from flipping a house, you’ll need to be handy with a hammer, know how to lay carpet, enjoy hanging drywall, have the skill to balance a flat of shingles on your shoulder while climbing a ladder to the roof and be able to install all the appliances in a kitchen. If you’re up on all those skills, you could have the skills needed to flip a house at a nice profit. If you have to hire professionals to do all or part of these skills, your profit odds just dropped dramatically.
4. Lack of patience: Novices rush in where professionals know not to go. It takes time to flip a house and the profit margin may be slim at times. Professionals take their time and do it right themselves or hire a reliable contractor to do it. Novices buy the first property that comes available, hires the first contractor to bid, then wonder where the profits are. Patience is the key to success.
Do your homework before getting involved in flipping houses. Be prepared going in and you’ll come out fine at the end.