Without a doubt, the best way to succeed at house flipping is to identify early warning signs that a deal can potentially go south before it happens.
Read on for tell-tale clues that you might be walking into a nightmare of a deal that could cost you thousands.
7 Signs That You Should Walk Away From a Deal
1. The After Repair Value Is Based On Google
Trying to determine the after repair value of a home by doing an internet search is one way of setting yourself up for a disaster.
It’s not that you shouldn’t use the internet to get an idea of how much your ARV will be, but your research shouldn’t just end there; you should meet and speak with a local expert real estate agent. A real estate agent who knows a lot about the area where you want to purchase the property would be in a better position to give you a more accurate ARV.
2. You Are Using Eraser Math
There’s a reason the 70% rule is so effective — so when you start using eraser math to figure out your 70%, you stand to lose a lot of money.
When you get too excited about a house flip and then try to adjust the numbers to suit your situation, that’s when you get into trouble. If you find yourself trying to adjust the numbers so that they can look good on paper, that’s likely a sign that you are about to get into a bad deal.
3. Your Deal Does Not Have An Exit Strategy
Anything can go wrong when investing in real estate. Without an exit strategy, you might find yourself stranded. Some of the strategies you can employ include:
- Wholesaling to another real estate investor
If none of the exit strategies mentioned are feasible or you cannot formulate one then you should let the deal go.
4. Trying To Flip A House Alone
House flipping is a team effort. Of course you can do it alone, but this usually isn’t the best route. In fact, not having a house flipping team increases the chances of your flip being a flop more so than if you are new to the industry.
Spend at least six months networking and forming relationships with important house flip team members. You should form beneficial relationships with:
- Real estate agents
- General contractors
- Certified public accountants
- Real estate attorneys
5. You’ve Invested All Your Life Savings In The Flip
The bigger the risk, the greater the reward, right? But are you willing to take the risk with your life savings?
If you want to invest money in real estate, you should consider using OPM (Other People’s Money). You can always find people who are looking to invest by networking and forming relationships. A good place to start would be attending REIA meetings. Get investors interested by offering them good deals. No one will give you their hard-earned money if you are the only one benefiting from it.
6. You Are Managing The Rehab Without Experience
Reality TV shows have people believing that rehabbing a house involves slapping on a new coat of paint, hammering in a nail or two and selling the property for a profit. This misconception has people believing that anybody can renovate a house without experience.
If you try to renovate a house on your own and you do not know what you are doing, you risk not renovating the home properly. As a result, a number of issues can come up in the future for the homeowner. If you don’t have a clue as to how to renovate a home, find someone who does. There are plenty of talented contractors who are good at their job; you just have to find and meet them.
7. Your Gut Tells You Otherwise
Investing in real estate comes with a lot of fear, but with a few tips you can easily overcome it. However, if you have an overwhelming sense of fear about purchasing a house, then you probably shouldn’t. You should acknowledge that there’s a possibility you are in over your head if you your gut constantly tells you that the deal might not work out well.
What warning signs have you seen but perhaps ignored?
Be sure to leave your comments below!
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.