The 4 Big Fix and Flip Mistakes

4

Last week, I walked into Chipotle and ordered to-go lunches for me and my wife.  After waiting in line, placing my order, waiting in line some more, and finally paying, I left – without my burritos.  Before I could make it out the door the guy at the register hollered out SIR, YOUR FOOD!

Boy did I feel stupid.

I’ve made this mistake before.  One time I went into Starbucks for coffee and walked out empty handed.  Not too long ago I left a gallon of milk and eggs at the grocery store.  No matter how hard I try this keeps happening to me.  I guess you could say I’m easily distracted.

Since 2009, I’ve flipped 59 houses.  And unfortunately, I’ve made the same mistakes multiple times on several of them.  Why?  Because fixing and flipping is not an exact science.  I’ve had some time to reflect and came up with the four biggest mistakes I’ve made as a fix and flipper.  Here they are, in no particular order:

  1. Overestimating the value of a property
  2. Over remodeling the property
  3. Under remodeling the property
  4. Underestimating the holding time

Overestimating the value of a property

This is very easy to do, especially if you’re desperate for a deal.  I find this happens to me because I go into the project thinking that I’m going to make house look as good, or better, than any other recent comp.  Thus, the market will pay more.  Of course, there can also be undisclosed environmental factors that adversely value.  Like a 300 lb. barking dog living next door to my property.

Over remodeling the property

This happens a lot to new investors I meet.  They think the property has to look as good, or better, than their own.  I’m sorry but granite counter tops and plantation shutters aren’t necessary for an $80,000 track home on the outskirts of town.  Formica and 2” fake wood blinds will do.  Too many bells and whistles will kill your margins.

Under remodeling the property

Of the 4, I make this mistake the least.  I tend to over remodel.  However, on occasion I’ve cut a few corners.   Whenever I elect to clean carpet, rather than replace with new, it seems like the house sits on the market longer, and sells for less.  I mean who doesn’t love the smell of brand new carpet?

Underestimating the holding time

Determining how much demand there will be for a property is one of the most difficult things to do as a fix and flipper.  It’s impossible to know who will want your house, and when.  I flipped a not-so-special house in a not-so-special neighborhood in 27 days.  It turns out the buyers had a son and daughter-in-law that lived three doors down.  Conversely, I flipped a house in two weeks, bought the same model 5 doors down to flip, and it sat on the market 5 months.

Can these mistakes be avoided?  Probably not.  Let’s face it – we’re dealing with a real estate market that is as fickle as the weather.  The chances you or I can accurately forecast the sales price of a property and the appropriate amount of repairs are slim.  We stand an even slimmer chance of knowing what kind of demand there will be for the property.

However, we can do our best due diligence on the comps and make improvements based on the price point and location of the house.  As for demand, stick to areas with a limited supply.  Keep in mind that with fixing and flipping we don’t need to be exactly right to make money.  Being exactly wrong is what’s costly.

Subscribe to our mailing list

* indicates required Email Address * First Name Last Name

About Author

Marty (G+) is the Chief Financial Officer for Rising Sun Capital Group, LLC, a real estate investment firm based in Gilbert, AZ. His firm purchases homes at the courthouse steps and public REO auctions. They have two exit strategies, either fix and flip or seller financing.

4 Comments

  1. Excellent article Marty. These seem to be the mistakes everyone makes. I also agree that you are much more likely to make mistakes when you “NEED” a deal; when you really need some cash.

    I do believe that you make fewer mistakes with experience especially when it comes to rehabbing. But if you pay too much for the house initially, you will pay dearly for that mistake every time.

    I have learned to pick middle of the road comps, figure repairs and other costs high and know when to walk away if I can’t get the house at the right price. So overall, I make less mistakes now than I used to.

    There is just a learning curve for everyone, and even experienced investors still screw up every now and then. That’s just the way it is!

  2. Buying and flipping homes, townhomes or condos is a case by case scenario. One of the crucial factors is what you paid for it and the location. If you paid well below market you are in a win win situation. If you bought a property at below market price in a area where homes have updates such as granite-marble and so on then you should be more inclined to remodel in that fashion. The opposite applies if the area is not rehabilitated. A superficial facelift of a property can sometimes do wonders for the sale.

    Price is a very important decision for the resale factor. You need to take into account what your goal is when it comes to return on investment. I believe any property will sell quickly if it shows well and is priced right.

  3. Great points, but don’t forget the financing. Sometimes you can rehab a house and your financing is what needs rehabbing as the Bank, Hard Money Lender, etc. is the one getting your profit.

    Thanks for sharing

    Jim Ingersoll

Leave A Reply

css.php