Over-improving the Property
Make the home comparable to the other homes in the neighborhood. Understand what finishes and amenities are expected for the area then keep within those “limitations”. The best strategy is to make the home comparable to other top-selling homes in the neighborhood. Using quality materials is always a good idea, but there’s no need to install radiant flooring, a saltwater pool and marble showers in a neighborhood with $300,000 homes. Also, you do not need to make your flip the best house on the block – just comparable.
Not Knowing What Local Home Buyers Want
House flippers have to have a finger on the pulse of their local market. They should know what types of home styles have appeal, the finishes that are most popular and which upgrades will attract buyers. Avoid stylized decor and stick with a nuetral palette.
Forgoing the Inspection
It’s a key part of doing your due diligence. Even if you can’t get inside the home, an inspector can still take a look at the outside to search for signs of structural, roofing, electrical, and foundation issues. The last thing you want is to discover while you’re renovating is dry rot or another big, expensive fix. Ask your inspector to focus on the major issues, and what features might be outdated or not up to code.
Not Running Good Comps Before Buying
You’ll definitely want to run the comps before listing the home, but you should also do that before buying. It’s the only way to accurately guesstimate what kind of gross return you can expect after the acquisition, renovation, and listing costs.
Bonus Tip: In addition to looking at the recent sales in the area, your research should also take a look at how current prices compare to the last peak. This will give you an idea of whether prices are still on the upswing and by how much.
Not Analyzing the Sales Activity
Three key factors are: the average days on market, rent versus own ratio, and foreclosure rate for the neighborhood. Ideally, you want to see lower than average days on market, higher than average owner rate, and 3% or less foreclosures in the last year.
Ignoring the Backyard
Even if the budget is tight, a recent outdoor features survey from the National Association of Realtors (NAR) shows that new sod, lawn care, and landscaping are a great investment. These improvements have high ROI and will get you a dollar for dollar return while helping the home sell quicker. Fire features and wood decks also rate high on the home buyer wish list.
Trying to Do It All on Your Own
Once you’ve assessed your own skills, think about what gaps you need to fill and start looking for people who can fit one or more of your gaps. Trying to do it all on your own and making renovations you’ve never done before usually ends up wasting time, materials, and money.
Forgetting About Taxes
Taxes are an inevitable expense that will eat into your net return. When you turn a profit you’ll have to pay short-term capital gains taxes. Transfer taxes and property taxes will also need to be paid.
Ignoring Zoning and Permits
If the city finds out work is being done without permits you could face serious fines and have to undo all the renovations that have already been completed. You could also find yourself entangled in a lawsuit or tough negotiations if the buyers find defects and unpermitted projects
Not Enlising the Help of a Real Estate Agent
Worried about the cost of paying commission? Research has shown using a real estate agent for a house flip isn’t more expensive. Homes sold by agents typically sell for 6% more than FSBOs, which covers the cost of the commission and they’ll handle the marketing expenses. The agent may even be willing to accept a lower commission rate if they helped you purchase the property or get a guarantee to help you with future flips.
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