When people ask me about the key to flipping houses in Knoxville, I tell them that they shouldn’t think of the market as “just Knoxville”. Like everywhere else, there are distinct markets in distinct areas, and different strategies, depending on where and when you buy. Houses located 15 minutes apart can require different strategies to flip.
That’s the key to achieving the best results, whether you are in Knoxville or New York, Portland or Palm Springs. You have to look at the precise situation for each house and plan your strategy around that.
What does that mean? Well, let’s take a look at a few house flipping before and after projects, and I can show you how my team and I maximized our profit potential by having dedicated strategies that were also flexible.
How To Avoid Common Pitfalls When Flipping Houses
When you’re ready to start investing in real estate, you need to choose a strategy that reflects your commitment and goals. That can mean deciding if you want to go solo or as part of a partnership; if you want to wholesale, rent out, or fix-and-flip; and if real estate investing will be full-time or part-time.
That is your strategy to start. But going into each potential project you need to decide on an exit strategy. If you are undergoing a rehab-and-sell project, your exit strategy means selling as soon as possible for a maximum profit. Your profit is the cost of the home plus the rehab subtracted from what you sell the house for.
The best way to maximize profits is to avoid the most common pitfalls of rehab. These include:
- Overpaying for the house. This is your biggest cost. You need to value the house properly.
- Overestimating the selling price. Remember that each neighborhood has its own values. Don’t estimate that you can sell a house for a million bucks in an area where they are going for a tenth that amount. You don’t sell a house in a vacuum.
- Over or under rehab. If you do shoddy work in a hot neighborhood, it’s not likely that someone is going to buy. The same can be said even if you do incredible, gold-plated work in a run-down neighborhood.
- Underestimating rehab costs. When you include your estimated repair costs into profit calculations, every extra dollar you spend on rehab is a dollar subtracted from your profit.
- Going over on time. Remember you’re paying insurance costs, utilities, and eventually your loan (with interest!). The longer you take to sell, the more it eats into your budget.
- Get attached emotionally. This is a problem. While you want to do your best work, too many people go overboard because they make every project their dream home. An investment property isn’t. It’s a job in which you are trying to do enough work to sell for the best price without going over your budget.
Take a look at the projects below to see how I avoided these common pitfalls.
3 Successful Flipping Houses Before and After Projects
These are three very different projects that each had their own set of challenges.
Project 1: 5512 Dogwood Rd
This was a 1940s house that had been run-down but had solid bones and very unique architecture. Most importantly, it was located in the Fountain City neighborhood. The area is very residential, with great walkability to craft breweries, live music, and great food. In short, it is the kind of neighborhood that attracts income.
Because of that, we went all out on this rehab. It was probably our most extensive project yet. On the exterior, we regraded the lawn, put in a new driveway, expanded the yard by scrapping an old, rotten deck, and removed the not-so-pleasant-looking siding, replacing it with a more natural stucco. We put on a new roof.
The interior was even more extensive. This included:
- Floor plan changes
- Refinished existing hardwood floors
- New ceramic tile in the bathrooms and laundry room
- Restored existing floor tile in living room
- Restored areas of plaster walls and replaced all other walls and ceilings with new drywall
- Restored existing doors in the main area of the house and replaced all doors at previous addition, adding new door hardware throughout
- Kitchen: replaced all cabinets, countertops, and appliances, and added a tile backsplash
- Bathrooms: replaced all vanities, toilets, and tubs (restored master bathtub); added new wall tile
- Repaired and painted both chimneys
- Lighting: all new lighting throughout
Why did we do all this? Because it was worth it. We knew it was going to sell. It was the ideal location to pour resources in. In this case, I didn’t want to under-rehab.
The specific house, with its history, its quirky appeal, and its neighborhood dictated our strategy.
Project 2: 4004 Abercorn Rd
This was the quickest and easiest project we’d ever done. In a lot of ways, it was the opposite of the Dogwood project. The house was built in 1993 and seemed in good shape. It was located in a decent neighborhood—very comfortable and friendly—but not one where people are rushing to move to. In other words, this was just a house.
Our scope of work was very limited. Most of it was cosmetic—painting, cleaning, new appliances, general maintenance, etc.
The only big-ticket item was the new flooring, which was in much worse shape than we had anticipated. Going in, we knew we had to work on the floors. Once we opened the floor, we realized that there had been extensive water damage, and many of the floor joists needed to be replaced.
That could have been a problem. But we had given ourselves a lot of slack in the rehab budget, so we still managed to finish the project under budget.
The lessons here?
- We over-budgeted for rehab, so we were prepared for the unexpected, which always happens.
- We planned for the neighborhood and adjusted our prices, strategies, and expectations accordingly.
- We didn’t fall in love. Sure, my team was talented enough to make this the best house in the neighborhood, but it was more profitable to get in, do a good job making it nicer, and get out quick.
That doesn’t always happen.
Project 3: 4854 Co Op Rd
This was sort of a strange project because we finished under budget for our rehab. However, we didn’t finish it on time.
In terms of workload, this was moderate. We did general work on the exterior, and some more detailed work on the interior, including all-new lighting, demoing a faux fireplace, and creating a third bedroom. So it was a good amount of work. I knew that giving people more room would make this a more attractive house in Rockford, outside the city proper.
This was a good house and a good deal, so I went for it. My main crew was working on another project so I had a crew that I didn’t know as well. They took a lot longer than I had anticipated.
If I had hired a better crew, I wouldn’t have had those costs go over. We still were on budget, but the slack I’d built in got pretty tight. Lesson learned.
The Best Way To Avoid Before and After Pitfalls of Flipping Houses
When you think about it, the overarching pitfall is underestimating your costs and overestimating the price you’ll get. Each of these costs you money. And the last thing you want is to spend more than you bring in.
As an independently owned and operated HomeVestors® franchise, I have a secret weapon to avoiding those pitfalls: ValueChek®, a proprietary tool that helps me estimate the ARV of any project. Over the years, I’ve updated my pricing profile to match costs on previous projects as well as general market costs in my target area. It’s been said a thousand times, but trust the numbers.
It makes my life easier. It makes projects more realistic. It helps me augment my experience and expertise. It’s a tool that makes my “after” photos look like what I’d imagined in the “before” phase of house flipping.
If you need a tool that helps you avoid the before and after pitfalls of flipping houses, request information about becoming a franchisee today.
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