Where did your home flipping strategy go wrong?

Despite the general steadiness of real estate as an income generator, home flipping happens to be one of the trickiest and riskiest endeavors. Those who win, win big, while those who lose have to face long-term financial challenges. That doesn’t mean that flipping houses carries gambling-like unpredictability, on the contrary. House flipping requires a lot of work, research, time, money and patience. It’s not an activity for new, inexperienced investors and if we were to analyze the top reasons why home flipping fails, there is always one huge mistake that could have been avoided. Like in any field, you can learn from mistakes and become better with time, so here are the top reasons why home flipping turns out to be a failure:

You didn’t put enough time into the flipping process

If you’re looking for a quick fix to your financial problems, home flipping isn’t it. You cannot buy and sell a property from one week to another and expect to make millions, because flipping doesn’t work like that. When you decide that you want to invest in flipping houses, be prepared to invest months into finding the perfect property and renovating it. Before buying, you will have to meet up with inspectors to see what state it’s in, discuss rates with contractors, check your plans against local building regulations. After the renovations, which can span across several months if the property was in poor condition, you’ll have to look for investors and negotiate with them in addition to your daily duties. In the end, it all comes down to how much a valuable resource time is for you. If you were to earn more by putting in some overtime at your regular jobs, then perhaps it is time to put all your energy into that or consider an income opportunity that doesn’t require as much time. With home flipping, you have to invest time, otherwise it’s not going to work.

You put your trust in the wrong contractors

There is a reason why some of the most successful home flippers are contractors themselves or used to work in this industry. A flipped house requires renovations, so if you know how to paint walls, fix the plumbing or replace the floors yourself, you will have to pay contractors less. Plus, you have insider information because you know how renovating works and how to spot a good contractor, so you’re much less likely to be scammed. However, if you don’t know the first thing about renovations, your success greatly depends on the team of contractors you work with. Hiring someone because they are cheap or because a family member recommended them to you might exceed the deadline or give you below par results, so when you are flipping a home, either use your own expertise or be very, very demanding of the contractors you hire.

You didn’t have enough cash

The main idea behind home flipping is buying property for a low price, renovating it and then selling it to make a profit. However, paying with cash upfront is preferable to making a loan, because for the loan you have to pay interest. Furthermore, you shouldn’t exhaust your entire budget on buying the property and you should still have more left for renovations. There are ways to get back all or part of the cash you invest in the house through government-funded rebate programs such as the new residential rental property rebate, but the important thing is not to depend on the profit you could make from flipping the house. Although there are people who have become wealthier by flipping houses, most successful investors in this field already had a stable financial situation to begin with. Not having enough cash for home flipping pushes you into making rash decisions or being superficial about renovation, so it’s best to wait until you have the funds.

You didn’t know the market

If you want to be successful in the home flipping business, you need to work on a real estate market that you know like the back of your hand or have a consultant that does. Making investments without being informed can lead to losses or insignificant profits, so before investing in a property you need to know things such as:

What is the buying power in the neighborhood where you plan to invest? Is it worth spending over $50,000 on renovations only to make a $3000 profit?

How upscale is the neighborhood and what kind of home improvements would buyers truly be interested in?

What tax laws and rebates should you know about?

You weren’t patient

Wanting your investment to pay off as quickly as possible is perfectly normal, but you need to be patient, not rush into accepting the first offer. You have to browse the market for the best possible property, take the time to find the right contractors for renovations and then negotiate the selling price with the right buyer. Some home flippers hire a real estate agent to sell the property faster, but this involves more costs and reduces the profit margin, so taking the time to look for buyers yourself is a better idea.

Your local real estate market favors holding, not flipping

Sometimes, no matter how much time, money and effort you put into flipping a property, you cannot be successful simply because your local real estate market favors holding, not flipping. In that case, carefully consider the pros and cons of each option and, if you are serious about your home flipping strategy, then invest in another market instead.