When I first started flipping houses, I made so many mistakes it was a wonder I even made it through my first few years as a full time real estate investor.
When I made them back then, the big difference was I thought that if I made any mistakes, I’d be sunk. Like we discussed last week, your worst fears realized are never as bad as you make them out to be in your mind.
I once heard a quote that said:
“The more I make, the closer I am to success”
Although I don’t think that purposely making mistakes is the way to go when you’re doing anything, mistakes are inevitable – but the biggest thing is to just learn from them, don’t commit them ever again and keep driving forward.
Of course even today, I still make mistakes every day – but the difference is now I know that unless I all of a sudden I just completely lose my mind and have a total lapse in judgment, none of them are going to sink my business now.
And none of them are as bad as you think they are when they do happen.
But the biggest mistakes I really do my best to no longer make can be wrapped up into seven big ones.
And if you continually commit these sins, chances are your house flipping career is going to be fairly short.
Truth be told…I’m writing this today as much of a reminder to me to not do them (tough to resist sometimes) – but for you to hopefully avoid them as well.
This is a bit of “blogging therapy” for me LOL.
Learn to calculate ALL the expenses on your next flip! Check out the new BiggerPockets Fix and Flip Analysis and Reporting Tool. Try it out for free today!
How to Estimate Rehab Costs!
Estimating rehab costs accurately can make or break your real estate business, and it takes years of experience for even the best rehabbers to master the art. However, you can expose yourself to less risk and get more accurate with your projections by learning how the pros think when estimating construction costs.
The 7 Deadly Sins of House Flipping
So OK, you are going to make at least a few of these in your real estate investing career – nuff said. Can you avoid committing these sins consistently?
Unless you wish to be condemned to real estate investing hell—surrounded by bad credit, debts, and worthless properties – at all cost avoid these bad boys:
1. Lust – Falling In Lust With A Property
As a real estate investor, you’ll spend a very large portion of your time uncovering and finding deals to invest in – trying to find one that will work for you. In fact, we just surveyed our members at House Flipping School and “finding a deal” was the #1 thing they have issues with now!
It used to be how to flip houses with no money – but with foreclosures drying up and run down properties becoming harder and harder to find, this is now a big issue for many house flippers.
But finally all your hard work starts to pay off and that’s when you see it—the perfect house flip.
It’s in a good neighborhood – but its the worst house on the block. Cool. Its got tons of “potential” and you can see in your mind’s eye how awesome it will look when you have that first open house.
You’ve finally found the perfect property. Your starting to lust after it….
You put in your offer and wait for the reply – knowing how great of a deal its gonna be.
However, the seller isn’t budging. Your MAO, or “maximum allowable offer” is too low for them – even after you raise it up a few thousand from your original bid.
The house is so cool, maybe just this once, Ill break the 70% Rule and go over my MAO. After all, the house is killer good!
Worth it, right?
Wrong. Stick to your rules. Follow the MAO Rule, the 70% Rule – don’t get drawn in the siren song…if you do that your house flipping ship is heading straight for the big jeddy….
Think with your head. Don’t fall in lust. If the numbers don’t work, they dont work and don’t do that “eraser math”. Move on.
2. Pride – Doing Everything Yourself
Ah yes, pride.
For me, this is a tough one I’ve had to learn over and over again. I’m much better at it now though…although I used to be horrible at it.
So many new real estate investors have the delusion of sauntering into a run down hell-hole (those are the most ideal ones for us flippers by the way), picking up the sledge, smashing open some walls, drawing the nail gun out of the tool-belt holster, putting up some walls, fixing a little electrical, sweeping away the dust, and slapping on a new layer of paint.
Voila. Fix and flip – done!
How hard could it be anyway? Those guys on TV make it look pretty easy, right?
Even the smallest rehabs just aren’t that easy. The truth is to do a rehab the right way, is a very complex task. That’s why even the most experienced contractors have difficulty doing it all on their own.
Maybe you know a little bit about flooring (guilty as charged) – so you figure why should I pay someone else to install new subfloors in that rotting bathroom? “I can do it myself”, you think.
Two weeks and dozens of trips to Home Depot later, now you think to yourself how could I have been so stupid!
Remember that in house flipping its not just the costs – its the TIME. Time is money – literally. If you can get a flip done in six months with a professional crew, instead of twelve months with you doing it by yourself – you may have saved hundreds in labor costs but you likely spent thousands MORE in financing and carrying costs due to holding the property six months longer than expected.
There’s nothing worse than being up to your knees in unanticipated soft costs that destroys your house flip budget.
Which brings us to our next sin…
3. Gluttony – Overspending On The Rehab
Many house flippers think they have to make everything int he flip be like as if THEY were buying it themselves. I just HAVE to have 30 square feet of 1 1/2″ granite in the kitchen and stainless steel appliances – because thats what I would want in my kitchen!
When you are renovating your flip, you don’t want to go to the extreme and get the cheapest of everything either. If you do, potential buyers will notice.
By the same token, you have to reel in your costs and extra dollar wisely where it has the greatest impact. For example, granite countertops are awesome. I love them in my kitchen and in my flips…but only if it makes sense.
For example in one of my more successful flips, we did install granite in the kitchen – but only because it had a very small countertop footprint and I knew if I installed it – it would make the house appear more luxurious, without spending a ton of money.
On that flip, we sold it and made a tidy $56,000+ profit – and that was after ALL expenses.
We also added a back deck and vaulted ceilings int he master bedroom for short money – both which we got so many compliments on.
It sold in one day above asking.
Was it the countertops? Was it the deck? Was it the vaulted ceiling in the master? Could be.
The point is you dont need to overspend – just spend in the high impact zones. Just make sure that if you do, you don’t exceed your predetermined budget. If you do, be ABSOLUTELY certain you’ll make it back – otherwise you might run the risk of losing money on the project.
4. Wrath – Getting Upset When Things Go Wrong
On so many occasions, I’ve wanted to strangle my contractor.
In flipping, things go wrong, people mess up. Deal with it. Don’t let it eat you up.
Sometime during your flip, you’ll most likely run into many unforeseen problems. Expect on an average flip at least twenty of them or so.
Twenty? Yes, twenty. Budget for it and expect it.
If its only ten, then consider yourself lucky.
So when they happen, expect it and make sure that you don’t let your emotions get the better of you – don’t do something you’ll later regret. Although it is tempting to ring that contractor by his neck….
But I digress.
When he mis-schedules the drywall guys before the insulation guys have finished and BEFORE the housing inspector has done the electrical walk through…you may be temped to let him have it…
Don’t do it.
Take a deep breath and control that deadly sin of wrath boiling up inside of you. I’m not saying this is easy – its going to be hard – but remember that you really need him – maybe more than he needs you.
So treat people with decency and without wrath and youre house flip career (not to mention your blood pressure) will be all the better for it.
5. Greed – Asking Too Much
We all want to make money in this business, but sometimes an indirect approach is more successful than a direct one.
What I mean by this is, you’ll make more money in the end if your initial asking price on the property is somewhat reasonable. If it is much higher than any potential buyer in their right mind would pay for, you might lose the interest of some promising prospects.
You’ll end up having to re-price and relist the property, but by then it might be too late to get to the prime candidates. All the while, the longer you hold, the more your soft costs and your finance costs add up.
Price it right and listen to your broker and the CMA you get from your broker. After all, it’s better to cater to the demands of a small few rather than lead a whole school of fish.
6. Envy – Trying To Get Rich Quick
Getting rich quick sure sounds good.
Getting rich slowly is far less sexy…but its the way it actually works.
So many gurus online preach the message of getting rich quick in this business. Software programs that will help you find properties from the comfort of your home. Babes in bikinis and hot shots driving Lamborghinis, all with just the snap of your fingers.
In reality, flipping houses takes a considerable amount of time and effort like anything else. If there really was one hidden secret that could make you a millionaire overnight, I’d be the first one to line up and get it.
If you’ve been on here at Bigger Pockets for any length of time, you’ll know that it doesn’t quite work that way.
When buying real estate, there really isn’t going to be one payday that’s going to earn you an insane amount of money and fix all your problems. Then you can retire on a beach somewhere and just count your cash.
Real estate investing and house flipping is a process. Your job is to optimize the chances of making the most money you can on each property. Once you get good at it one at a time, you can then start to scale. That’s when you can work on multiple projects at once and generate diversified income from a few different sources.
Maybe some are flips, some are rentals, some are spec homes.
But at first, concentrate on just one and get really good at it.
Just don’t expect to look under your pillow when you wake up tomorrow and find yourself living in a million dollar mansion with bikini-clad babes, a few hundred thousand dollars in a pile on your desk right next to the keys to your Lambo.
Instead, get to work. Take one step forward every day. Do it every day and that is how you make it to success.
Forget the Lambo for right now and just concentrate on the next step, then the step after that, then the step after that…
7. Sloth – Failing To Take Action
There’s one of my wife’s DVDs that I see evry time I look into our DVD drawer near the TV (on my way to finding Braveheart, Shawshank Redemption or Stripes by the way) called “Failure to Launch”.
Without checking IMDB, I think Sandra Bullock was in it and that Brad something or other guy who seems to be in every movie right now…
Although I’ve never actually watched it, whenever I see it in the drawer, Im always struck by the title: “Failure to Launch”. Although the movie may be a dud, the title is a good one.
The reason it resonates is because the title encapsulates the single most common problem for beginner real estate investors.
It was my biggest problem when I first started as well – its starting the process in the first place.
While educating yourself and preparing yourself for success is vitally important – and I highly recommend people learning as much as they possibly can to be successful – taking actual action is the most necessary step of all.
There is always more information to learn and some of it can be picked up during the process.
Start by writing down exactly what you want to do and start completing the steps one by one to make it happen. Dont get lazy. Get to work instead. Start and don’t fall victim to the deadly sin of doing nothing. In this case, the deadly sin of sloth.
Or more poignantly…failure to launch.
Because when all is said and done, you’ll never become a house flipper from your couch.
If you’ve made it this far, please leave a comment below! What mistakes and sins have you fallen victim to? Did I miss any??
Leave a comment below and let me know!