Fix and Flop: Common Pitfalls of Fix and Flip Buyers
The housing market is filled with properties just looking for the right investor to come along and fix them up. Fix and flip properties are appealing to investors as they are considered short term investments which can yield a substantial profit within a relatively short period of time.
A hard money loan is a very attractive option for a lot of investors who may not have the capital on hand they need to purchase the property. A hard money loan is an asset based loan which can provide the financial assistance needed to help fund your fix and flip project.
Once funding has been secured, you can start bringing your project to life. Investors should be conscious of some of the most common and potentially costly pitfalls they may encounter during the process.
1. Ignoring the neighborhood
You’ve managed to locate the perfect property. It has great potential and seems like a good fit for both your skill set and wallet. A common mistake a lot of buyers make is not properly assessing the surrounding area as far as market appeal.
No matter how beautiful the home itself may be, if it is surrounded by unkempt neighbors or located far away from common amenities, it can negatively affect the return on your investment.
2. Overpaying for the property
There are plenty of attractively priced properties in today’s market. Even if you think a property is being offered at a great price, you should always try to negotiate a better deal.
Any money you can save on the purchase of the property is more money in your pocket towards renovations or unforeseen expenses.
3. Forgoing the initial home inspection
Although tempting to skip, a professional home inspection is always a good idea. As handy as you may be, it can never hurt to have a professional inspector assess the property to help identify any defects that may have to be addressed prior to you purchasing the property.
Things like foundation problems or faulting plumbing can be costly to repair and eat away at any budget you had if you did not notice the issue up front. An inspector’s trained eye can help you avoid getting in over your head before it’s too late.
4. Making the house your own
Unless you’ve changed your plan and intend on living in the property, try to avoid the common mistake of designing the house the way you would want it. Remember, this house is not going to be yours. The main objective here is to remodel a home in such a way that it appears to the vast majority of buyers and fits in with the homes around it.
For example, if every house in the neighborhood is lightly colored, with light kitchen cabinets, it may be a gamble to go with dark colors and dark mahogany cabinets. You want to keep things as neutral as you can, yet appealing enough where potential buyers could imagine themselves in the home.
Speaking to your agent or visiting open houses in the area can give you a good idea of what is desirable. Choosing the wrong designs and amenities can make the property more difficult to sell and may also cut into your profit margin if you have to lower your price to ensure you close a sale.
5. Underestimating expenses
This is a big one. When you have a budget for renovations, you should always aim to come in below that budget at say, 80% or less if possible.
By giving yourself a cushion, you will have already allotted a small amount to additional materials and supplies as needed. As always, also keep in mind that with any home renovation project, you will more than likely run into unforeseen expenses.
Some of these could be very costly. Aiming to come in as far below budget as possible will ensure that you do not run into a cash shortage while still in the midst of your project.
6. Choosing the wrong contractors
No matter how handy you are, hiring professionals to assist you with your project can take a lot of stress off of you to do the work yourself and can definitely speed up the time it takes to get your property market ready.
However, choosing the right people for the job is a critical element to your success. When choosing a contractor, you want to keep in mind the size of the project in relation to the capabilities of the contractor.
If you choose a contractor who is a one man team, the turnaround time for a project could be longer than if you hired a larger company to take on the task at hand. However, if a company is too large, they may not have the time to dedicate to unforeseen issues immediately if they have other obligations.
Talk to your contractors up front about your timeline and their skills and resources and be sure to choose someone who is a good fit for you. What are your options if they are not meeting your timeline or perform unsatisfactory work?
Hiring the wrong individuals can be devastating to your end goal. If you are new to flipping homes, always ask for references when hiring new contractors.
7. Improper pricing
So the hard work is finally done and you are ready to list your property. Particularly if you are a novice at fixing and flipping, you will want to make it a point to listen to your real estate agent, or at least consult with one if you plan on listing the property on your own, to ensure your price point is spot on.
The longer a home sits on the market, the harder it is to sell. Make sure you are confident that your property is priced competitively from the start to guarantee you’ll get plenty of interest right out of the gate.
Let Orchard Funding Help You
When investing in this business, it is important to have a professional lender on your side. Orchard Funding’s Fix and Flip hard money loans can provide the financing you need to start flipping houses today.
It is never too early to invest in your future and we can help. Don’t delay and submit your loan application today. Our underwriting process is easy, and we can approve you in 24 hours or less.
The application process is straightforward and in some cases no appraisal is required. If you’re thinking about getting a fix and flip loan, contact us here or call (310) 356 – 7373.