First Time House Flippers - Mistakes to Avoid

There is a first time for everything and house flipping is no exception. It is the rare person, if they exist at all, that emerges from their first house flip without a "scar" or two-be they physical or emotional. If you are preparing to step-or trip-into your first house flip, read this article to avoid common mistakes. This article is for average house flippers. Most of us don't flip houses in the millions of dollars-as seen on TV.

Before you decide to buy a house and flip it, do your market research and the math. Know what you are paying, including fees associated with the purchase, and what the house can reasonably sell for, after rehabilitation. The difference between these two numbers is the combination of what you can spend on the renovations and your potential profit. Here is an example:

Purchase Price is $65,000 (including fees)

Reasonable Market Value is $105,000

The Difference between these two numbers is $40,000 (renovation costs plus potential profit)

If you spend $15,000 on the renovations, the remaining profit will be $25,000 less any selling costs (realtor fees, title transfer fees, local taxes, points, etc.)

If you are working with a buyer's agent on this purchase, ask them to look up the most recent comparable sales (after renovation value) in the area and give you that information. If you are not working with an agent, go down to the local court house and look up recent deed transfers for the area. If you determine you cannot make a reasonable profit on a house-don't buy it.

Don't underestimate costs. Over spending and budget busting are also common house flipping debacles. Remember that no matter what you do to the house or how much you spend on the rehab, the house will only have a market value relative to the comparables in the area. This means that asking $200,000 for a house in a neighborhood where the highest priced house has sold for only $140,000 is unrealistic. No one is going to be so in awe of your granite counter top that they will over pay, especially in today's market.

You must establish a budget and stick with it for the basic rehab. Basic means making the house marketable. You never know what extra expenses you may encounter once you begin your flip. Things like leaks, foundation problems and hidden damage can blow you out of the flipping water with extra costs. So, be conservative with your initial budget-just in case. If you have money left in your budget when you approach completion, you can then choose to upgrade something or take the money as extra profit.

Don't buy the most expensive faucets, ceiling fans and appliances. These are budget busters. Keep within budget and within the market standards. Go and look at new houses being built in the area. This will give you a good idea of what you will be competing against once your rehab goes on the market. Try to be comparable, but don't try to outdo them.

Colors, colors, colors. Colors can get you in trouble, because what you like may not be what the potential buyer may like. Stick with neutrals. Whites and off whites are safe. Most new construction homes will have antique white walls with white trim. Depending on how much time you have and how steady you are with paint, you may opt to go all white or all antique white for walls and trim. The color you choose for outside can contribute or distract from the home's curb appeal. Painting a house bright yellow may bring attention to it, but may deter buyers. A good neutral shade is Sherwin William's Macadamia. No matter where you buy your paint, they can probably do a color match to the Sherwin William's shade. Though, I will say that I am partial to Sherwin William's paint, because of its great coverage. We have opted to make this color our standard because it seems to go with any shade of brick on the houses we have renovated. It makes them look classy in any neighborhood. Trim with white.

Don't put out the For Sale sign or list the property with a realtor, until you are almost finished with the work. Only fine tuning and details should be left, when you go public. Why? Because most people can't see past the ugly, dirty or messy to the beautiful, clean neat finished product. If they could, everyone would be flipping houses. Most people don't have your vision. Damaged walls, floors, and dirty conditions will send potential buyers away. It is better to wait.

Don't hire people to do what you can do yourself. If you pay someone $500.00 - $1,000.00 to clean out trash and haul appliances to the dump that is money out of your profit. Buy a pair of gloves, a filter mask and do it yourself.

Don't assume that because it is dirty or stained, it can't be salvaged. One renovator I worked with routinely ripped out bath and kitchen fixtures because they were dirty or stained. Once I showed him that many of these things could be cleaned sufficiently to make them look good, he stopped wasting that money. I told him he could give me the money he saved as a bonus. He just laughed. I have used many of the recipes for cleaning found in the little cleaning book that came with my BurnBuster Kit (see reference section), "Good Old Fashioned Cleaning." It has saved me more than its cost several times over. Note: The BurnBuster Kit people have agreed to put a buy button on their page to accommodate those who only wish to purchase the booklet. It is $3.50 plus $2.00 s&h. See URL in references.

Final words of wisdom:

THIS IS NOT YOUR HOUSE. YOU ARE NOT GOING TO LIVE HERE. YOU WANT TO MAKE A PROFIT-THIS IS A BUSINESS NOT A HOBBY.

NEVER, never, never guess how much the house will sell for after rehabilitation and NEVER, never, never start a rehab without a budget. You could lose your shirt-and your pants.