Avoid These Horrendous House Flipping Mistakes

In fix and flip investing, there are a plethora of mistakes that you can make. Everyone is bound to make at least a few mistakes on every flip – it’s just part of the process. That said, many mistakes will have a minimal impact on your bottom line; others could land you in bankruptcy.

If you’re new to the fix and flip profession, read over each of these errors carefully to make sure that you never commit any of these cardinal house flipping mistakes.

• Lying on your loan application

House flipping loans are an essential part of the fix and flip market, so if you can’t secure one, you’re stuck before you even begin. However, this does not mean that you should lie on applications for residential rehab loans in order to get started.

Private money lenders are smart. They’re willing to look at a person’s track record, even beyond their credit report, to assess whether a person is a good candidate for a fix and flip loan. If you have to lie in order to obtain a loan from a private lender, chances are you’re overextending your finances and putting yourself in a very risky situation.

• Buying sight unseen

I don’t care how nice of a virtual tour a homeowner puts online: you should never buy an investment property sight unseen. It is essential to look through the property yourself -- or have someone you trust do so -- and have a thorough housing inspection done. Housing inspections routinely find big problems such as cracks in the foundation, hidden mold, and leaky roofs, all of which could make your fix and flip investment a total bust.

• Buying too many properties to fast

Just because you can buy a property doesn’t necessarily mean you should. It’s important to balance your risks and not put too many eggs in one basket. If you’re purchasing multiple investment properties at a time, make sure you have the necessary capital and experience to back up that decision. If you are new to fix and flip investing, make sure that you understand all of the potential complications and challenges of flipping houses before diving into a second or third investment.

• Not having enough cash

Underestimating the cost of renovation is one of the biggest mistakes made by new house flippers. Make sure that the loan you secure covers not just the purchase price but also the costs of any necessary renovations.

It’s also important to only focus on renovations that have a high return on investment. Don’t waste the funds you have on changes that will deter some potential buyers or only have a minimal impact on the final purchase price.

• Using an unlicensed contractor

This one is a doozy. Using an unlicensed contractor is like asking for everything to go wrong. With an unlicensed contractor, you risk implementing changes that are not up to code, facing hefty fines and potential lawsuits, and the very real chance that your property never gets finished. Having a contractor that is both professional and quick will make all the difference in your fix and flip experience.