5 Mistakes That Can Make Fix and Flip Loans for Beginners a Flop
Avoid the pitfalls that neophyte flippers underestimate
- Approve fix and flips loans;
- Buy a house;
- Minimal renovation costs;
- Put it back to the market for sale;
- And gain a huge profit.
It seems too easy! But that’s not the real picture. In most cases, fix and flips loans for beginners have proven as a nightmare. In 2019, flipped homes accounted for 6.2 percent of all home sales in the United States; it slightly dipped in 2020 but bounced back by the end of the second quarter of 2021.
Yet, being real estate rich isn’t too easy. Many real estate tycoons overlook the five fix and flip loans fundamentals and end up failing.
On the other hand, some successful fix and flips lending services in the USA like VP Capital Lending always take care of these five mistakes and achieve great results. So, what are those five mistakes that can be made? And how can a beginner avoid them?
Let’s find it out!
- Flipping houses using a fix and flip loan requires good knowledge, planning, and savvy to achieve goals.
- A common mistake that some real estate investors make is not understanding the importance of time and money that projected demand.
- Another common mistake that some investors make is overestimating their knowledge and skills.
- The most important skills required in every business are patience and good judgment.
Mistake #1: Not Enough Capital
Amateurish in real estate is expensive. The first expense that every real estate investor has to face is the cost of acquisition that an investor has to pay to book a property after adjusting discounts, closing costs, and other important expenditures.
Finding low/no money down financing deals from a legitimate vendor is not like walking in a park. Moreover, if you are financing the acquisition, you’ll pay high interest. If you use a mortgage or credit line service like HELOC to fix and flip a property, only the interest is deductible. You have to pay for principal, taxes, and insurance.
Mistake #2: Not Enough Time
There is no doubt that renovating a property and flipping it is a time-consuming task. It can take from a few days to 2-3 months to find and buy the found property. Then, once you have the property’s title, you need to invest time and money to revamp it.
Suppose you have a day job; the time required for construction and renovation can make your evenings and weekends. And if you hire someone else to do the work, you have to spend more time and money supervising the activity.
Is that worth it? Weigh your options and fully understand how you want to allocate your expenses for renovations, while still being cognizant of the goal you have set for your ROI.
Mistake #3: Inadequate Skills
Many skilled professionals (carpenters, plumbers, painters, etc.) often flip houses for some side income to their regular wages. Some have great experience, knowledge, and skills to find and fix a property. However, the real capital in house flipping comes from self physical labor, mental effort, and time.
If you are handy with a hammer or enjoy drywall; roof a house and install a kitchen sink. On the other hand, if you don’t know how to handle a Phillips-head screwdriver, you may have to pay a professional for renovations. This will reduce your profit margin.
Mistake #4: Not Enough Knowledge
To be successful in the real estate business, you must know how to pick the right property at the right price as per the location. In a neighborhood where the median home value is $200,000 homes, buying a property for $260,000 and selling at $350,000 may lead to challenges. The market is far an excess of zeal for that to happen every day.
Having a full understanding of the scope of work and what you are wanting to skip is key. Moreover, you also need to understand the zoning laws and applicable tax laws. Additionally, you have to know when to cut your losses before your project becomes a money black hole. Big commercial multifamily financing companies start by seeking profits in the flip-loan marketplace.
Mistake #5: Lack of Patience
Real players take their time to settle on the field and then wait for the right pitch before swinging for a home run. A first-time investor may rush out to buy the house that they see first. After that, they hire a contractor who makes proposes to address renovation works they can’t do themselves. While some investors do the work themselves or depend on a network of reliable contractors. Some investors hire real estate agents to help sell the house, while others depend on “for sale by owner” efforts to limit costs and increase profit margin. These are all things to consider when investing.
The Bottom Line
If you are always thinking about flipping a house, try to understand what it takes and what risks are involved. Some investors underestimate the time or money required and overestimate their skills and knowledge. There is no doubt you can earn a good profit, but you have to be willing to put in 100 percent effort. Flipping a home is not as easy as counting 1, 2, 3.