4 Money Missteps to Avoid With Your First Home Flip
So you’re zeroing in on your very first real estate investment purchase: a home with potential that you're planning on flipping. Congrats! But now it's time to get to work.
Just be aware: Even if you spend weeks, or months, getting your investment property ready to sell, these efforts don't necessarily guarantee profits. To give yourself a greater chance of making money off of your flip, you'll want to avoid the following mistakes.
1. Hanging on for too long
For professional investors, flipping a home should be seen as a short-term process.
Time is of the essence when flipping a home, and the quicker you can make it look good and sell it, the better. Any additional time spent on over-renovating it or obsessing over minute details can cut into your bottom line.
The longer it’s not getting sold, the more potential revenue you miss out on. Plus, sinking money and labor into additional features can also mean you'll make less money at the end of the deal.
So to make sure your house will fit in with comparable properties in the neighborhood, look for trends. In your neighborhood, are there McMansions stuffed with high-end appliances, or are most of the houses from the '70s with modest updates? Figure it out, and play it close to the medium.
3. Not having an emergency fund
Experienced investors will consider this house flipping 101, but we cannot stress enough how important it is to have plenty of cash on hand in case of emergencies. What if your contractor finds asbestos and you have to pay additional money to eradicate it? What if there's a downpour on the day you're supposed to paint? Not having an emergency fund set aside can badly derail your project and put you in the red.
To figure out how much you need, add together your overhead per month—mortgage, taxes, insurance, your lawyer, leasing agent, accountant, etc.—and multiply that by six for at least a half-year cushion, Tomasulo recommends.
4. Pricing yourself out of the market
Are you holding out for a higher sale price? You’re doing it wrong. The main reason houses sell fast is because they’re priced right for the market they're in. That's why it's important to look at the comps in your neighborhood and speak to local real estate agents when deciding on a price for your investment property. Price it right in the beginning, and get it sold.