Flipping houses is not as simple as what you see on TV. There are many things that can go wrong, especially for inexperienced house flippers. It’s important to learn from the experiences of others to avoid the most common pitfalls of fix-and-flips. To help, these experts share the biggest house flipping mistakes investors should avoid.
Here are the top 24 house flipping mistakes to avoid, straight from the pros:
1. Taking on Too Big a Project
Ray Sturm, CEO & Co-Founder, AlphaFlow
A common house flipping pitfall is flippers taking on too big of a project before they’re ready to do so. Taking a home and carrying out a heavy renovation on it (e.g., putting in more than $100,000 into the rehab) may lead to bigger margins, but may come with a lot more project risks.
A larger rehab like this might look to take down a wall in order to make the kitchen and dining room into a single, more open area. That type of structural work can lead to a host of issues, like finding unexpected mold, termites not found as part of a regular inspection, or needing to put in some unexpected structural reinforcements to compensate for changing the load different beams may hold. All of those issues can seriously impact the timeline and cost of a project.
Starting with smaller, more cosmetic projects may not have the same allure, but by the same token will allow the flipper to gain experience with smaller issues that could help them better understand and cope with risks of bigger projects in the future.
2. Over-Improving a Property
Adrienne Francis, Sales Associate, Keller Williams Towne Square Realty
Now is not the time to over-improve because value is more important than ever. Perhaps seed the back yard and skip the sod. Go for a lower cost tile in the bathrooms and cabinetry in the kitchen. People still want big outfitted closets and lower-level living space, but they won’t notice the difference between a tile that is $5.00 per foot and $8.00 per foot, which could be huge for the flipper. Keep it clean and simple. Overdone kitchen backsplashes are out, as is dark granite. Appeal to the masses even more so today.
3. Skimping Out on Staging
Orren Azani, Licensed Associate Real Estate Broker, Compass
Sometimes flippers spend a fortune on a renovation and then skimp out on staging, when that can be the most important factor. For instance, you can increase the value of your property by installing items like nest thermostats and Lutron dimmers. These can give the appearance of “smart” home technology. But the important thing is, just make sure it is staged correctly.
4. Not Increasing Home Insurance Coverage After Remodeling
Tonya Bruin, CEO, To Do-Done Renovations
Remodeling projects can add up to 25% to a home’s value, yet many homeowners make the mistake of forgetting to increase coverage to protect their investment. Most homeowner’s insurance policies require 100% of the home’s replacement cost, so it’s critical to raise your home’s policy limit before the remodeling project begins.
5. Failing to Thoroughly Evaluate the Bones of a House Before Upgrading
Laura Muller, Interior Designer, CEO, & Owner, Four Point Design Build Inc.
It’s important to first identify, review, and evaluate the existing infrastructure and function of the house. Check the HVAC, electrical, plumbing, roof, and fireplace, and what will be needed to bring the home into a safe operational status. Carefully consider and evaluate the costs of any state or local required code upgrades. For best use of investment dollars and highest return, stay close to the original style of the house and work to improve what already exists.
6. Failing to Build a Strong Real Estate Network
Daniela Andreevska, Marketing Director, Mashvisor
If you want to succeed in the fix-and-flip strategy, you will need to build a network of various real estate professionals, including property sellers, agents, financiers, handymen, property buyers, and other real estate investors. The key to success in flipping homes is to act fast, which means that you have to have all the people you would need ready and available before you even buy your first property.
Failing to build a real estate network right away is one of the biggest pitfalls flippers should avoid. You should put efforts into expanding your network and focusing on those people who prove most beneficial to your business.
7. Failing to Screen Contractors Thoroughly
Brian Davis, Co-founder & Lead Real Estate Writer, Spark Rental
Investors should put contractors through a rigorous screening process that includes contacting references, visiting current work sites, checking completed work, reading online reviews on websites like Angie’s List, and verifying their licenses and bonding. After all that, ideally investors should start contractors on small projects first, and gradually build up to larger home renovations. Investors entrust contractors with assets worth hundreds of thousands of dollars, but far too many investors fail to put in the time and effort to make sure their investment is safe in those contractors’ hands.
8. Overpricing a House for Sale
Cornelius Charles, Co-Owner, Dream Home Property Solutions, LLC
Another common house flipping mistake is trying to sell the house for too much money. Some new investors think that they can move the market and that their flip will sell for a lot more than any of the other comparables. While there could be a chance that your flip sells for more, especially in strong sellers’ markets, it could also be a recipe for disaster.
We have seen newer investors overprice their homes and they just end up sitting on the market for months and months. A good way to avoid this is to price your home right at the comparables, or even a little bit lower. This should encourage a lot of interest in your home and hopefully even produce a multiple offer scenario.
9. Overpaying for Properties
Sacha Ferrandi, CEO, Source Capital Funding, Inc.
Investing in real estate has the potential to be a very profitable financial move. However, if you plan on flipping a home, be sure not to overspend during the initial purchase so that enough money is left for worthwhile renovations. Take advantage of online budget calculators and make spending limitations specific to your home investment needs; create area-specific budgets for each part of the home and stick closely to those limits. Smart spending is one of the most impactful aspects of whether or not you will have a profitable home flip.
10. Not Planning for Unexpected Problems
John Hayter, Partner, Ranch Marketing Associates
Whether you are flipping homes, farms, or ranches, you have to plan for the unforeseen. Many times you may not have the ability to do thorough due diligence. For example, if you are purchasing a property at a tax sale, you will not have the ability to do inspections. Many of the most lucrative fix-and-flip opportunities are distressed properties, so a buyer needs to budget for the unexpected contingencies.
Even if you are able to do good due diligence, you cannot see into walls and enclosed spaces, and you never know what kind of surprises you are going to find when you begin the actual tear-out for remodeling. These unexpected issues can burn up your profit margin, and they are not limited to the structure itself. You could run into problems with property setbacks, encroachments, and liens. Make sure you do as much due diligence as possible and have a contingency budget.
11. Under-Improving a Property
Ryan Burns, Co-Founder, Texas Hard Money
While flipping houses has the potential to be a lucrative investment, losing a sale due to under-improving the property can be a real struggle. To mitigate this risk, it is important to be aware of upcoming industry trends, not just what is hot right now.
To get the most out of the sale, check out upcoming trade shows to see the newest technology in HVAC, plumbing, electrical, appliances, and more. A fresh coat of paint and new flooring is expected when moving into a new place. Try to “wow” potential buyers by installing some of the latest smart-home improvements and help solidify the value of the purchase.
12. Doing Everything Yourself
Nina Furseth, Engagement & Corporate Communications Analyst, RealtyHop
No matter how handy you are, there are things you can’t fix yourself. No matter how much money you think you are going to save by going DIY, there are ways to hire professionals and get a better result without burning through your cash.
Before you decide on going DIY, have someone walk through the renovation plan with you. You might want to get quotes from multiple contractors and compare that with your opportunity cost. Remember, DIY doesn’t mean that you save money. Sometimes, you might end up spending more because of the mistakes you make as an amateur. Also, professionals sometimes get better deals when sourcing material to help you save on cost.
13. Overspending for Repairs
Adrian Todoran, Media Manager, Real Estate Sales LLC
While you certainly should buy quality materials, you need to resist the urge to buy the nicer, more expensive faucet or the prettier cabinet pulls. Always buy with price and quality in mind, with a close eye on the budget. Overspending for repairs is a common pitfall every new (and even experienced) fix-and-flipper should avoid.
14. Hiring the Cheapest Labor You Can Find
Adam P. Smith, President & Founder, The Colorado Real Estate Finance Group, Inc.
Hiring the cheapest labor when flipping houses is tantamount to hiring the cheapest labor in any other aspect of your life. You want to hire people who are going to do the job quickly, efficiently, accurately, and professionally. Anything less might result in issues like a project taking too long, or worse, a project gone wrong. Hiring the cheapest labor might result in someone who’s inefficient doing the work, and it will cost you more in the long run (especially if the work is done poorly and has to be redone by someone else).
All these things will affect your margins and bottom line. And this is all precursory to a future buyer finding an issue that might cause you even greater headaches and costs down the road. Don’t hire the cheapest labor. Hire the best labor at a reasonable price when considering all the angles.
15. Not Having Enough Money to Finance Renovations
James Bartoes, Licensed Real Estate Salesperson, Triplemint
The biggest cost of the project is the renovations. Flippers almost always fail because they run out of money before the project is ready to be put back into the market. They will either walk away with a huge loss (selling to another developer who can finish the project) or they will have to start cutting corners.
Inexperienced flippers might think cutting corners is not a big deal, but really, it’s everything. Buying a single shallow kitchen sink with a cheap faucet instead of the double deep sink with a functional faucet is a prime example. This may save you hundreds of dollars, but that can ruin your property’s resale value. Flippers can avoid these problems by having 25% more cash in your budget for the renovations.
16. Not Having Solid Financing
Mike Hills, Associate Broker, Atlas Real Estate Group
There are too many stories of flippers receiving hard money loans and by the end of the process, the lender is the only one who makes any money. Limit the number of partners you have and make sure that everyone, including the investors, are clear on their roles and expectations.
17. Underestimating the Time Required for Flipping
Eric Sztanyo, Team Sztanyo Lead Agent & Founder, We Buy NKY Houses
Another common house flipping mistake is underestimating the timetable of the flip. Many flippers will underestimate both how long it will take to do the renovations as well as how long it will take to sell and close on the house. Make sure your calculations for your capital costs include a conservative month on both rehabbing and selling the house. Also, don’t forget to factor in the holding costs.
18. Investing in a Money Pit
Pablo Solomon, Award-Winning Designer, PabloSolomon.com
Avoid buying a house that has too many problems. Aside from this being too costly to fix, it can also cause you a lot of stress and headaches. The big-time investors can spot a home that is just not worth the effort. They also know that if you can buy a really bad house in a really prime area cheaply enough, you can tear it down and build a new home or unit and still make money.
19. Designing the House According to Your Personal Taste
John Linden, Interior & Furniture designer, MirrorCoop
One of the biggest mistakes most flippers make is designing the house according to their personal taste. Just because you’re a huge fan of orange doesn’t mean you should paint your project house orange. Remember, you are flipping a house for someone else to live in, not for yourself. Make sure to design the house to fit in with the rest of the neighborhood. Avoid making your flip look like your dream home.
20. Not Understanding the Numbers
Derik Keith, Owner, Metro Cash Offer
One of the biggest house flipping mistakes people can make is doing poor due diligence on understanding actual cash flow, market value, and rehab costs. In other words, they make a mistake in not looking at all the details of what the flip will actually cost, undervaluing the rehab costs, and not having an accurate grip on what the house is actually worth in the market.
21. Failing to Do Proper Due Diligence
Jerryll Noorden, CEO, We Buy Houses in Connecticut LLC
Failing to do proper due diligence is one of the biggest house mistakes investors should avoid. Figure out if it is in a hot location or not. What the school system is like, and whether it is near a noisy airport or active train tracks. Is it on a main road? Find out how long the house sat on the market during previous sales. All these questions need to be investigated and researched, as you will be facing these issues after you buy it and try to sell it again.
22. Believing Too Much of What You See on TV
Venkat, Owner, Basement Gurus
Don’t get sucked in by reality TV shows or late night infomercials. The reality show is far from reality. What happens in the real world takes months, and you will lose your sleep over it if you are not prepared. You need to plan properly and execute well to win in the flipping game because fix-and-flipping is not as easy as what the reality TV shows tend to make us believe.
Making a real estate investment without a business plan in place is one of the biggest mistakes when flipping houses. According to LendingHome, it’s important to write a business plan before anything else, as it helps investors understand their risk, reward, and ROI after the house is flipped and sold. A strategic business plan also helps investors estimate their timeline and the potential costs of the project.
Time is of the essence when flipping houses. However, you have to understand that the process of buying and rehabilitating a house does not happen overnight. Current Mortgage Rates Today recommends setting a reasonable and conservative time frame for the project to avoid frustrations and stress. It’s best to talk to your contractors to know how much time they need to complete the project and set expectations clearly.
The most successful and experienced house flippers know that flipping houses is a serious business. It can be financially rewarding if you know what to do, but you could lose your investment if you make too many mistakes. Start off on the right track by avoiding these biggest house flipping mistakes on your next fix-and-flip project.