The process of flipping a home seems like a simple enough premise. Buy a home for a low value, add some value to it through various improvements and finally sell it for a handsome profit. However, that formula simply does not work every time and there are flips every year that become massive flops, some big enough to discourage those investors from getting back into the business. This is a bit of a shame given that a few failures are common in any profession, whether it be house flipping or not.
The fact is, some investors have a weak stomach for the business and such a deal could send them out of the business all together. While you may not be able to avoid landing at least one failure over the course of your career, there are some traits and aspects of potential projects that you can look out for to minimize your risk of ending a flip attempt in a miserable flop.
Spend Time With Market Analysis
Simply, a strong market analysis is your best friend when it comes to flipping a property. If your market analysis is off considerably, you will be operating under false assumptions through the entire project and when it comes time to sell, you will get a rude awakening as to the real value of the property you have spent so much time working on. Doing proper homework on the market analysis of not only the home in the state you are going to buy it, but also in the state you hope to get it to, will help you avoid this problem.
A faulty market analysis typically becomes a problem when certain amenities are valued incorrectly for a particular area. For example, if you decide through market analysis that an extra bathroom will add $30,000 worth of value to a property but in reality it only adds $10,000, that $20,000 could be the lion’s share of the profit you were counting on. Valuations are important for your home purchase, but are more important for the amenities you are going to add to improve the property.
Don’t Abandon Ship Too Early
One mistake early investors sometimes make is renting out a home when it does not sell for the price they want it to right away. The logic behind the move is to get something out of the refurbished home that will add to the profit margin and make selling it for a lower price not quite as rough on profit. While that can seem like a great idea and indeed works in some instances, never underestimate what kind of wear a renter can put on a property.
The worst case scenario would entail having to rehab a home a second time after the security deposit does not cover what a renter did to the property. Indeed, hanging on to the property and marketing it differently or pursuing a staging company for better showings might be a better use of an investor’s time and money. While the lure of gaining rental income can be tempting, those not experienced in being a landlord are best left to more conventional means of monetizing a property.
While no investment career is without its failures, there are some steps you can take to not only protect yourself, but keep yourself out of further trouble if things look momentarily bleak. Do not abandon ship too early or your chance for even a small amount of profitability might sail along with the hole your renter just put in the wall. Investing in a property only to flip it can be risky at times, but to those that commit to it, research it well and execute a solid plan, flipping can be a steady way to accumulate personal wealth.
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