Real Estate Elevated: 5 Common Mistakes New Real Estate Investors Make
Believe it or not, Tarek and I started flipping houses with very little experience in investing. We were real estate agents for many years, so of course we thought we knew the real estate world (including investing) forwards and backwards. Little did we know, there was a lot we needed to learn to become successful flippers. Needless to say, we made many mistakes along the way and I’m sure some of them could have easily been avoided.
As a flipper, especially if you are brand new, you will make mistakes. Don’t get discouraged if you mess up, it happens to all of us, but learning how to avoid mistakes in the first place will save you valuable time and money.
Underestimating Your Repair Costs
Unfortunately, this is one of the easiest mistakes you can make as a flipper. When starting out, most flippers have very little idea of how much renovating a property will actually cost and they end up throwing out a random amount. Even after years of investing, Tarek and I still sometimes oversee repair costs.
I’ll be the first to admit that accurately estimating repair costs is not easy. More often than not, you won’t see repairs or know about them until you actually start renovating. If you don’t plan for these hidden repairs in your budget from the get-go, it can be really frustrating having to scrounge up extra money to finish your project. I recommend working with a contractor when estimating repair costs as they will be able to get a much more accurate estimate than you will. Tarek and I also add an extra 10% buffer to our budget to give us peace of mind when unexpected repairs show up.
Not Having a Set Plan
I know many newbie flippers who find a good deal on a house, make an offer, and then they come up with an action plan after they purchase the house. I hate to break it to you, but this is not a smart idea! While I know that finding a good deal is exciting and often hard to pass up, you need to have your investing strategy set in stone before you start buying houses. Once you know your plan, you’ll be able to know what homes fit with your plan and everything will fall into place.
Listing Your Finished Flip for Too High
After contributing countless hours of time, and a large chunk of money, you’ll obviously want to sell your flip quickly so you can make a profit off of your hard work. But if your flip ends up going over budget, takes longer to complete, or makes less money than you were expecting, you could be tempted to list the house for too high of an amount and not be able to sell it.
If your flip sits on the market for more than a month, people will begin to wonder what’s wrong with it and it will be impossible to sell. You may end up losing money because you can’t get rid of the house. When deciding on a listing price, compare your flip with comps in the area and base your price off of them even if it means losing money. I promise you’ll be better off in the long-run if you can get the house off your hands fast.
Hoping to Get Rich Quick
Flipping is not a get rich quick scheme. As with any other form of long-term investing, it takes time and patience, and in this case a lot of blood, sweat and tears. Many newbie flippers begin flipping houses with the hopes of making profit easily and quickly, only to find out that it requires way more time and money than they had planned.
If Tarek and I wanted to make money with very little effort, we certainly wouldn’t have taken the flipping route and would invest our money elsewhere. But we decided to flip houses because we love real estate and we enjoy the renovating and remodeling process. Avoid falling into the trap of hoping you’ll get rich quick through real estate investing by making sure it’s something you actually want to dedicate a lot of time, money and hard work to before you start.
Doing Everything By Yourself
Many flippers think they can do everything on their own, but one of the keys to being a successful flipper is having a team of experts to help along the way. I recommend that you start with a real estate agent, home inspector, appraiser, lender, attorney and a contractor on your team, and then expand once you get your business going. Starting out with basic team members will help things run more smoothly and will prevent you from taking on everything by yourself.
Investing in real estate is not easy, and if it was easy everyone would be doing it. Learn how to avoid making these mistakes from the beginning, and you’ll be on your way to investing success in no time!
For more information about real estate investing, visit Real Estate Elevated's BiggerPockets blog.