When I met Danny at a talk I gave at a local networking event, he was a mixed bag of emotions about his decision to start investing in real estate. He was certainly excited about getting into flipping houses, but also concerned that the risks of investing in residential property might slow him down—or stop him before he could ever really get started. He wasn’t even sure that he was giving proper weight to the most critical of risks.
As a successful old-timer in this business, I’ve got a handle on the most important considerations to take stock of. So, I instructed my new friend on exactly where he should look before he leaped into his new real estate investing career as well as how he could face these challenges with more certainty and succeed, too.
The Risks You’ll Face When Getting Into Flipping Houses
If, like Danny, you’re wondering how you can turn flipping houses into a good business without increasing your chances of falling on your financial face, you’ve come to the right place. It can be overwhelming when you’re just getting started in your new career and aren’t certain what kind of pitfalls could be lurking around the corner. But, being able to overcome obstacles —and learn how to avoid them altogether—can override the overwhelming anxiety and push you forward. So, let’s start there. Before you buy residential investment property to rehab and resell, consider these five risks and why it’s crucial to avoid them.
- Buying too high. Paying too much to purchase a property is an all-too-common mistake that many new investors make. And, it’s not hard to see why. If you’re trying to build your investment business in a competitive city or are intent on buying a cheap home from an auction, it’s easy to offer too much on a house just to get your foot in the investing door. Skip a home inspection—for any reason—and you’re bound to buy too high, too. In order to successfully flip a house, you have to pay a price that is below market value and leaves enough room to perform rehab and realize a strong return. Otherwise, your profits will fall flat and, overpay often enough, so will your business.
- Renovating too much. You also don’t want to spend so much on the rehab that you nix the potential for realizing a good return. If you go into a renovation blind, you may discover you’ve bought a money pit—and more regret than you can financially handle. Equally dangerous is to give your flip the kind of facelift that looks good on TV but won’t appeal to your neighborhood’s target market. You just won’t realize good returns if, in reality, no one wants to buy your rehabbed house. So, don’t overdo—or overspend—on the renovation.
- Holding for too long. It’s essential to consider how long you’ll have to hold each property you flip since this can impact your returns as well. While rehabbing and waiting for a buyer, the lights will have to be on, your loan payments must be made, and the property taxes will have to be settled. Collectively, these costs can subtract from your returns if they aren’t factored into your budget or the house can’t be sold as quickly as you’d hoped.
- Selling for too little. Another common mistake that real estate investors make is to underestimate how much they can sell a house for. Sometimes, it’s an issue of not properly calculating a home’s After Repair Value (ARV). But, it can be a problem with confidence, too. Either way, your bottom line doesn’t benefit when you don’t know how to run your numbers or if you let insecurity run amok at listing time. Of course, as you get better at calculating a property’s ARV and more confident at asking buyers for the right price, selling too low won’t be a concern. But, if it takes you too long to acquire these skills, not turning a profit on your flips will cut your career short.
- Getting too few deals. Despite the popular myth that making a killing off of one property is possible, how much money you can make flipping houses depends more on the number of deals you regularly get. A strong career starts with buying a home at a low price, calculating all renovation and holding costs, then selling it confidently at the right ARV. But, it certainly doesn’t end there. In order to keep the wheels of your business turning, you have to move through these steps over and over. So, if you’re getting into house flipping to get rich quick, you might want to reconsider.
Knowing what to look out for and why is only your first step toward mitigating the biggest risks you’ll face when getting into flipping houses. Your next step, of course, is to put into place the right training, tools, and support that will help you navigate these challenges and move you more confidently in the direction of success. And, I know of only one way to get access to all of these resources at once so that you can get your real estate investing career off to a great start.
Face the Challenges of Flipping Houses With More Certainty
Danny’s interest in assessing the risks he might have to overcome upon getting into flipping houses already puts him ahead of the curve. Too many investors today jump right in without considering the magnitude of the challenges they could face and whether they’ll have the right resources on hand to survive them. Heck, I know of one investor who did that way back in the day—me! I bought a major fixer for too much and ended up holding it for too long because I was in over my head on repairs. You already know what happened next. I lost most of the money I’d invested when I finally sold it. Thankfully, I didn’t lose my shirt or my mind!
Not wanting to make the same mistake twice, I immediately started looking for a way that I could flip houses more skillfully. I didn’t have to look any further than becoming an independently owned and operated HomeVestors® franchisee. See, after the initial week-long comprehensive training that every new franchisee goes through, you get access to a whole host of tools and resources designed to help you build your business with more certainty. But, you also get ongoing support from your fellow franchisees and your own seasoned Development Agent. So, when difficulties do arise, you can confidently rise to the challenge.
Face the challenges of a professional real estate investing career with more certainty by joining the team that wants to help you succeed. Take the leap and call HomeVestors today!
Each franchise office is independently owned and operated.