Flipping a house can be a great way to turn a quick profit. This especially holds true if you're planning to do much of the work involved yourself, since you'll save money on labor costs, thereby maximizing your returns. But if you're not careful, your house flip may end up being one giant disaster. Here are a few signs that you’re heading down that path.
1. You haven't researched the neighborhood
You don't want to flip a home in any neighborhood. Rather, you want to make sure you're investing in an area that's reasonably desirable so that someone actually buys the house you're working on. But also, you want to make sure the updates you're planning to make align with the neighborhood in question. A home with an upgraded kitchen, flooring, and bathrooms in an area where most of the homes are old and dated will stand out -- but not necessarily in a good way. If you attempt to sell that home at a price that's much higher than the average property, you may have trouble finding a buyer.
The takeaway? Don't be so quick to snag a low-priced home before digging into the surrounding neighborhood, and make sure the house is worth flipping in the first place.
2. You're on a very limited budget
Flipping a house often costs more money than expected. If funds are limited, and you don't have wiggle room in your renovation budget to allow for extra costs, then you may get stuck in a situation where you have to abandon ship mid-flip -- and take a major loss in the process.
A better solution? Secure enough funding ahead of time so you're not forced to bail on your project, scramble, or cut corners that leave you struggling to find a buyer. A traditional bank loan works in this regard, but you'll need to make sure your credit is solid before applying. Or, you can borrow against a home you already have equity in via a home equity loan or a home equity line of credit (HELOC).
3. You’re on a tight timeline
If your goal is to buy a house, flip it, and get out quickly, you may need to rethink that plan. Renovating a home takes time, and sometimes, the more work you do on a property, the more problems you discover that need to be addressed. Even if your renovations do get completed on schedule, you can't discount the possibility of getting held up when town inspectors can't come to look at your work for weeks, or permits get delayed when the municipal office workers who issue them call out sick for days.
The point? Be careful if you're dealing with an extremely rigid timeline for recouping your cash. Chances are, things will take longer than anticipated.
4. You're planning to do work you're not qualified to handle
It's one thing to break down walls on your own, install bathroom tile, or replace worn carpet with updated flooring. But it's another thing to attempt to tackle major plumbing work or engage in electrical upgrades when you don't have the background, skills -- or, in some cases, the license -- needed to do that work safely, effectively, and in a manner that's actually up to code.
Before you get into a house-flipping project, see what the work involved entails, and factor the cost of hiring key professionals into your budget. If you don't, you risk botching the work, losing money, and, worst of all, really hurting yourself in the process.
The last thing you want is to sink money into a house flip and wind up on the losing end of that investment. Recognize the signs of a disastrous house flip so you don't wind up making a mistake you sorely regret later.
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