1. Forgetting about building permits
A little unlicensed construction might not seem like a big deal, but permit problems can lead to lawsuits if potential buyers (or their potential lenders) discover defects late in the process of a sale. If you’re working on your home’s structure, plumbing, gas or electrical systems, you’re probably going to need the city’s stamp of approval.
2. Skipping a conversation with a local real estate expert
The Internet is a marvelous source of market information, but it shouldn’t be your only source. A local pro can help you with everything from finding your flip in the first place to puzzling out its ARV (After-Repair Value).
3. Going overboard with fancy finishes
High-end flips come with high stakes: If buyers don’t love your big-ticket design decisions as much as you do, they may balk at your big ticket altogether.
4. Neglecting easy fixes
Sure, a gut renovation that gives an old home an open floor plan delivers more “wow” than swapping out beat-up old doorknobs and light switches—but a discerning buyer notices these things, too (and they’re easy on your budget).
5. Jumping into a do-or-die flip
If the real estate market in your region takes a sudden turn and you find the need to change your strategy—say, by offering your project as a rental property until prices recover—you’ll need to be prepared to hold tight until its eventual sale. Flips might feel like sprints, but they can be marathons.
6. Staging without a pro (at first)
Hiring a home stager to prep your first flip for open houses is a spend that will serve you well in the long run: Pay close attention to how they show your property to its best advantage (and ask a lot of questions!), then keep those tricks in mind for future projects.
7. Racing the clock
What’s even worse than making mortgage payment after mortgage payment on a home that isn’t supposed to be yours for long? Falling short of the profit you should have made because you prioritized speed over a job well done. Psst: Buyers (and the inspectors they’ll call in) can tell the difference.
8. Starting a dozen projects at once
It’s undeniably satisfying to step away from a frustrating bit of renovation and turn to another task—a flipper’s work is rarely done, after all—but it’s also a surefire way to end up in the middle of a half-finished mess. The only way to make sure you’ve dotted your I’s and crossed your T’s is to follow projects through to completion, no matter how mind-numbingly tedious they might be.
9. Ignoring the “70 Percent Rule”
It’s a tried and true formula in the real-estate investment biz: Take your ARV, multiply it by 0.7 and subtract your repair cost estimate. That’s the maximum amount you should be paying for a property—period. The rule is sacred because it keeps you safe. After financing, carrying costs and out-of-the-blue expenses, you’ll most likely still profit from your flip.
10. Venturing into “eraser math”
Speaking of figures, the temptation to overestimate your potential property’s ARV in order to justify a higher maximum allowable offer (MAO) can be strong, particularly for first-time flippers who find themselves asked to pay slightly more than they expected—but it’s just not worth it. Factors beyond your control could lower your ARV by up to 20 percent by the time you’re ready to sell, according to some experts—and if you’ve already overshot your original estimates, the math will be even uglier.
11. Neglecting the landscaping
Overhauling an entire lot’s worth of greenery isn’t cheap, particularly if it’s been neglected for a long time, but TLC that increases a property’s curb appeal is a worthwhile line item—it can add up to 10 percent to your ARV! No, you don’t need to plant a forest and build a water feature, but cleanup, repairs and a bit of diligent gardening can go a long way.
12. OD’ing on DIY
As the Chinese philosopher Lao Tzu wrote in the Tao Te Ching, “The wise man is one who knows what he does not know.” As a real estate pro would put it, the wise first-time flipper is one who knows that he or she must not try to remodel an entire kitchen by herself.
13. Waiving a professional inspection
A thorough inspection of a prospective property will cost hundreds of dollars, but it can save thousands more—and help you develop your own checklist for flips to come.
14. Ignoring the neighbors
Buying the underpriced, ugliest house on the block is many a flipper’s favorite trick—but it’s easy to forget that though your place will be rehabbed and lovely by the time you list, other eyesores in the same neighborhood can impact its desirability (there’s a second-ugliest house out there, too). You want a diamond in the rough, but it shouldn’t be too rough.
15. Cutting corners in the bathroom
If your floor plan and budget can accommodate a full, modern bath, it’s worth your time. Many real estate experts argue that bathroom renovations provide returns on investment (ROI) that are comparable to kitchen renovations. A woefully outdated water closet, by contrast, can sink a sale.
16. Demolishing cabinets that can be refaced
Before you obliterate a kitchen that’s seen better days, consider stripping and refinishing lackluster surfaces and upgrading fixtures. A cleverly executed face-lift could be enough to distinguish your property from comparable listings in the neighborhood.
17. Not protecting your investment
Before you start any flip or remodel make sure that your hard earned money is protected. Accidents, vandalism, and the unexpected can leave you in a tremendous financial struggle. Make sure the improvements and your property is protected by a builders risk policy so that you know that you know. Speak with Sterling Peaks Insurance to make sure you have the coverage you need.
SPI Reflections Blog
Our blog is about educating our customers and the public about important insurance information that we feel is meaningful.