Thanks to HGTV's burgeoning fix-and-flip lineup, the fix-and-flip phenomenon has become an attractive investment. But don't be fooled—the best-laid plans often go awry. If you don't know which fix-and-flip pitfalls to avoid, the repercussions can be costly.
We’ve rounded up these four common pitfalls you should be avoid in order to ensure real estate investment success:
1. Not Sticking to Your Budget
The greatest pitfall for a fix-and-flip investor is not having a realistic budget. You have to remember to expect the best, plan for the worst, and prepare to be surprised. Make sure to account for even the most unexpected of expenses, especially with repairs. You might not have thought an extra roll-off dumpster would be necessary or that an appliance would need to be replaced. It’s a good idea to add a buffer of about 10 percent or more for unexpected surprises that crop up.
Once you’ve written out your budget, have someone you trust—another flipper or a contractor who knows the market—look it over for accuracy. Whatever you do, avoid the urge to pick up the eraser and force the numbers work for you. This is a sure-fire way to guarantee a budgeting failure.
Your fix-and-flip budget is part of your greater plan, and it needs to be as realistic as possible. The bottom line will always win, and if you haven’t budgeted correctly, you’ll find yourself cutting corners and compromising your entire fix-and-flip.
2. Using Inaccurate Comps
When you’re building your budget, make sure not to overprice the property. It’s important to remember the 70 percent rule, which states that an investor shouldn’t pay more than 70 percent of the After Repair Value (ARV) once fixes are finished on the property. If the ARV isn’t based on accurate comps, you could be in for a long, disappointing sales cycle.
Spend time assessing recent home sales in the area so you have an accurate handle on the fair market value of your fix-and-flip property. Don’t forget soft costs such as marketing, mortgage payments, real estate commissions, taxes, architect fees, and more. Having as much information as possible will allow you to calculate repairs more accurately so you can make a sensible purchase offer on the house. This will guarantee that you don’t overprice the property when you’re ready to sell.
3. Not Marketing
Gone are the days where a yard sign or newspaper listing could quickly sell a property. In 1981, 22 percent of homebuyers went to newspaper ads first to find a home, but today, 44 percent start looking online first. That number is even higher with millenials: Ninety-nine percent start their home-buying journey online! You have to be active on social media channels like Twitter, Instagram, and Facebook to make sure you’re covering as much ground as possible to sell your fix-and-flip property. With visuals like photos, videos, and virtual tours, you’ll be catering to the right crowd to sell your fix-and-flip quickly.
Being your own best marketer means you’re doing everything possible—including working with a selling agent—to promote your finished property. If you’re not pushing your property in as many places as possible, you could be adding time to the selling process, which means money lost.
4. Not Using REI Software
The fix-and-flip process can feel overwhelming, but with the right REI tools, you can find the most viable fix-and-flips in little to no time, giving you more time to fix the flip, market it, and sell it. As a real estate investor, it’s easy to get bogged down with the amount of factors and considerations that go into finding the right property at the right time, and this is where smart REI software comes in, giving you the confidence and information you need to streamline your fix-and-flip investment strategy.
Although the latest numbers from ATTOM Data Solutions reveal that U.S. flipping returns dropped to a two-year low in Q3 of 2017, there’s still plenty of room for a thoughtful investor to make money on fix-and-flip deals. In fact, 47 percent of markets actually saw an increase in house flipping in Q3 of 2017, making now the perfect time to find a fix-and-flip property for your investment portfolio.
Give your fix-and-flip REI business the advantage and refine your skills by tuning in to one of our live Deal Finding Fridays. Watch Privy live in action, and see how smart REI software can save you time and money.