This week, we're going to talk about the five biggest mistakes that people make when flipping houses.

One of the main reasons that I got into real estate in the first place was to learn about investing. And as a realtor, I advise clients and how to make the best investments.

When listing a lot of homes, I get to see where sellers overlook things or sometimes make mistakes in their home flips. What's good for my clients’ business is good for my business. So I want to take this week to let the buyers know the five things that they should avoid when looking at home flipping.

Make sure you read this blog from beginning to end. Because just missing one of these mistakes can cost 10s of 1000s of dollars.

5 Thousand Dollars Mistake

1.       Underestimating your rehab costs. I see buyers come in thinking that the repair costs will be $30,000, when in fact, it's a lot closer to $60,000. Now, this can happen for 2 reasons:

- One is that they don't actually know the costs. And that can happen a lot in the pandemic where the cost of materials is skyrocket.

- Second is to estimate the cost that will take them to the job of the users themselves.

This is not the real rehab cost, and it's not scalable. If you're going to do these properties, time and time again, you're going to need to be able to pay other people to do the work. And you're going to need to know the real costs involved.

2.       Overdoing the rehab. So many people will come in and make the changes that they want to make in their homes. This is not your dream home, you need to rehab the house based on the comps. One example of this is the popcorn ceiling. Sure this can look nice, and it can add value. But if the homes that are selling the area all have popcorn ceilings, you're going to be spending money that's not creating value. It's what the buyers expect. When doing renovations, you want to see your costs at least double. So if you're spending $1,000, you want to be able to get at least $2,000 back, spending $1,000 fixing the popcorn ceiling might not be worth it for you. We see this time and again with different finishing and floorings. The best way to know where to spend the money is by copying the comps, looking at what's sold in the area and what they've done to the house, and just copying that.

3.       Speculating the after repair value. So just like the one before we need to copy the comps or go off what's already selling in the area. If other homes are selling for $600,000, we need to copy exactly what they're doing and expect a sale of $600,000. If we think that we can do better upgrades and get a sale $650,000, this is where we can run in trouble can also go in the other direction. If we underestimate the repair value when we're buying and calculating numbers, we won't make an offer higher enough. And we'll get outbid by another buyer. So when you're estimating the ARV, or after repair value, make sure that you compare apples to apples and make sure you're doing what's needed for the area.

4.       Under estimating the timeline. A lot of people do the math and think that if it takes them 2 months to render the property, they'll have it flipped in three months. That would mean they'd have to do exactly the amount of work and the exact amount of time and get a perfect offer in the first day of listing that as a 30 day closing. But since the pandemic we've seen major delays in material and shortage and tradespeople causing a lot of these projects to go much, much longer than they anticipated. Another thing to consider is that even once the renovations are done, you still need to list that property, find the right buyer and have that buyer be able to close in a short period of time. You also have the problem if the buyer backs out of the deal. And going back to the market and relisting, again, extending the closing dates more.

5.       Money costs. And that's what it's costing you to finance the project. If you're making mistake number 4 and underestimating the timeline, this can be very costly. Many people just don't realize how expensive the lending fees can be. A lot of people will take the sale price minus the cost of rehab, minus the realtor commissions, minus the closing costs, and think they have the net profit. But in this, you're missing a huge cost, which is the lending costs and also taxes, utilities, and insurance. Of course, if you're a cash buyer, then you don't have this cost. But again, it's a business that isn't scalable or sustainable. You need to be able to build in the money costs into all your projects to make sure that you're profitable always in the future.

And here's a bonus tip. If you ever cut costs, like the lender fees, or a cost of construction, just to make the deal work, it's probably a red flag that the deal isn't for you. I see this time and time again where people will cut corners to make the deal work but in the end, something bad happens and doesn't work out for them.

If you do one in any of these 5 things, this can end up costing 10s of 1000s or even hundreds of 1000s, depending on the size of the project.