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:
- Overestimating the value of a property
- Over remodeling the property
- Under remodeling the property
- 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.