If you’re searching for homes for sale in Irvine with the intention of flipping them, you already know flipping can be financially rewarding. However, it can also be a disaster if you make serious mistakes. Even experienced flippers can make costly errors that eat up the profit from a project, but first-time flippers should be especially careful to avoid pitfalls. If you want to be a successful home flipper, here are some major mistakes you should avoid.
Failing to Get a Home Inspection
Even if you know the home needs major updates, you shouldn’t skip a home inspection. Most flipping projects involve cosmetic changes with as few structural changes as possible, which means it’s important to know what you’re buying and have an idea of how much work the home will need.
A home inspector can find all types of issues, from irrelevant issues to deal breakers. For example, after walking through the property, you may assume it only needs $30,000 in work to bring it in line with comparables in the neighborhood. However, discovering a damaged foundation during the project could add tens of thousands to your budget.
It’s common for first-time home flippers to assume their break-even point is the sum of the purchase price of the home and renovation expenses. However, there are many other costs that add up during a flip. Don’t forget to consider federal and state taxes on your profit, real estate commissions (if you use an agent), real estate transfer taxes, home inspection and appraisal costs, and expenses to close. If you are financing the purchase price or renovations, hidden costs will be even higher. As a general rule, add 10-15 percent to your total budget to account for these costs.
Not Having an Exit Strategy
Don’t assume everything will go according to plan. The real estate market can be fickle, so it’s wise to have at least one exit strategy if you can’t flip the home quickly. There are many strategies you can use, but some of the most common include renting out the home, leasing it, or wholesaling the property to another investor.
Doing It Alone
Successful flipping is a team effort. Even if you’re great at carpentry or you’re a natural salesman, it’s still essential to work with experts. Before you start your first flip, spend some time networking and establishing relationships with team members like lenders, Irvine real estate agents, certified public accountants, real estate attorneys, and general contractors.
Not Having Enough Liquid Cash
No matter what anyone says, you are unlikely to find low or no money down financing to flip a home. If you are like most flippers, you will need to borrow money and pay interest. Remember this interest will add to the amount you need on your sale to break even. Even if you pay cash for the acquisition of the home, there will be holding costs like utilities and taxes, and this does not even include your renovation costs.
Don’t assume you can just borrow everything you need. Even if you secure financing for the acquisition and renovations, you may not have enough cash to cover holding costs. What if it takes an extra month or two to sell the home? Will you be able to borrow more if the renovation budget is busted by unexpected repairs? Consider these what-if scenarios and make sure you have enough money set aside to cover the unexpected.
From Orangetree to Turtle Rock, Irvine real estate is ripe for the picking, whether you’re interested in flipping homes or finding a property to use as your primary residence. Get in touch with OC Residential, and one of our trusted agents can help you through every step of your search. Call 714-454-6304 today.