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image of couple fixing and flipping a house

4 Things to Avoid When Fixing and Flipping a Property

Diving into the real estate investment world can be very exciting—and there’s certainly a lot of money to be made. If you don’t have much experience or haven’t done your research, though, your first fix-and-flip could end up being a disaster. By being aware of some of the most common mistakes investors make with fix-and-flip properties and how to avoid them, you can come out on top.

Paying Too Much for the Property

Start with knowing how to determine a fair asking price for the property in question. Many factors need to be taken into consideration when deciding how much to pay for an investment property, including:

  • the location
  • square footage
  • number of bedrooms/bathrooms
  • overall condition

And of course, you’ll also need to consider how much you’ll be able to realistically sell the property for once you’ve made the improvements. Make sure an investment property is going to be worth your time and will actually pay off in the long-run. Otherwise, you’re setting yourself up for failure right from the beginning.

Doing Too Much (Or Too Little)

Deciding on how to spend your renovation budget on a fix-and-flip property is a very precise science. You’ll need to have a solid understanding of which improvements and repairs will ultimately yield you the best return on your investment. From there, you can make smart choices moving forward.

For example, did you know that adding a wooden deck or patio on an investment property can bring in as much as a 90% return on your investment? Other projects to consider that can really pay off include bathroom/kitchen upgrades and landscaping improvements.

Choosing the Wrong Professionals

Even if you consider yourself a DIY expert, you won’t want to take on an entire fix-and-flip yourself. Instead, your time and resources will be better spent making big-picture decisions and overseeing a team of experienced and licensed professionals.

The contractors you choose to trust with your property’s repairs and improvements can have a huge impact on the results—and on your bottom line. Take the time to screen and interview potential contractors, and always make sure they’re properly licensed, bonded, and insured.

Making Polarizing Design Choices

Ultimately, your goal with an investment property should be to appeal to as large of an audience of potential buyers as possible. This means that you’ll want to avoid making polarizing design choices and keep things neutral instead. As much as you might love the idea of installing a bright and bold backsplash tile in the kitchen, you’ll probably get better feedback from potential buyers if you stick with something neutral and in-demand, like a white subway tile backsplash.

As you can see, there’s a lot to keep in mind when it comes to taking on a fix-and-flip property. By starting with the right purchase price and choosing a team of reputable contractors to carry out your projects, you’ll be well on your way to making some money with your first real estate investment!

5 Ways to Market Your Home Flip

When you buy a house and then sell it for a profit — that is a home flip. For a house to be considered a flip, it must be bought to quickly resell it. You will need a solid real estate marketing plan to attract potential buyers to your home. You can sell the house yourself or through a listing agent, but you have a common goal — to sell the house in the shortest time possible for the highest possible price.

To reach your goal, you need to attract the largest number of potential buyers. This requires you have a market strategy. To come up with a market strategy you will need to answer the following two questions:

  • Where are you likely to find buyers interested to buy your home?
  • Where do buyers look to find homes for sale?

Potential profit only becomes a reality when the rehab is done, the home is resold, and you have the cash in hand. Use the following smart rules they will help you convert opportunities efficiently and consistently.

1. Find a Knowledgeable Real Estate Agent

A good agent will provide the best possible deal for your home, and in the most convenient manner possible. You should look for a real estate agent who has lots of experience, both in the industry and in your local area in particular. A knowledgeable agent will lead you through everything to successfully get a buyer and will answer any questions you have and protect you against any hindrances that may arise.

You can ask around from friends and family for referrals or search through the internet for local agents in your area.

2. Timing Is Key

Spring and summer are often the busiest time for home sales, but that doesn’t mean you should list your house only at those times. Even though winter may have fewer buyers, a couple of factors will motivate them to buy, for example, when they need to move for a job and need to find a new home as soon as possible.

Market conditions are local, so if you invest in an area that has a strong seasonal element, for example, a beach town, consider that into your consideration as well.

3. Spread the Word

Even though your real estate agent will do a great deal to market your home, you can still chip in to help spread the word further. Talk to your friends, family, and colleagues about your home flip. Post pictures of your home on social media, including Instagram, Facebook, and Twitter.

4. Price Wisely

Your real estate agent will advise you on the best price to put on the home sale that will entice buyers, and give you a good return on your investment.   But also look at similar properties in your area to see what price they offer. This will give you a clue — homes that have been on the market for many weeks may be an indication they are priced too high.

5. Negotiations are Key

Agents, mentors, and mastermind groups will help you when it comes to counter, help you to know when to hold firm, and when to accept the buyer’s offer. Listen to their recommendations as they’ve seen it all before.

Make yourself scarce when it is time to show your home, whether by appointment or an open house. Your anxious presence or added comments will add an element of pressure and awkwardness that could discourage buyers. Let your agent handle the case for you.

Drive Personal Wealth With Real Estate Investing

While looking for a great way to drive personal wealth, you may have stumbled across real estate investing. While the learning curve is pretty steep, you can flatten it by doing you research before you jump in with both feet. And, while there are risks involved, it is far less risky than investing in the stock market. Investing in real estate is one of the best ways to further your personal wealth.

Appreciation

Long-term appreciation in property increases your wealth. Even if you live in the property, it will increase in value. If you bought a property for $100,000 and lived in it for 15 or 30 years, depending on the market, it could significantly increase in value.

Depreciation

Depreciation is the amount you can write off on your investment. This saves you money because you won’t have to pay taxes on that amount of income from your investment. If the depreciation amount is higher than the amount of cash you earn from the property, then you avoid paying taxes on your investment.

Inflation

The concept of inflation is difficult for some people to understand, thus they don’t think of inflation when investing in real estate. In a nutshell, inflation is when the value of money decreases but goods and services increase. Since your mortgage amount is fixed – for the most part – for the years you own the property and rents continuously increase, you can see huge results in wealth-building after just a few years.

Cash Flow

Once you buy a property and rent it, your tenants are paying the costs of owning the property. If your rents are higher than your outflows, you have cash flow. Outflows include your mortgage, taxes, insurance and maintenance of the property.

Forced Equity

When you buy a fixer-upper and make the repairs, you increase the value of the property. This is forced equity. With appreciation, you are at the whim of the market, but forced equity uses hard numbers. When you buy a property that is sold at lower than market value because of the repairs it needs, then you make repairs, you add to your equity.

Tax Benefits

Every dollar you don’t have to pay taxes on is another dollar that increases your bottom line. When you have real estate investment properties, you can take certain deductions that lower the amount of taxes you pay. The tax code changes often, so you should always enlist the help of a tax attorney or a CPA. Common tax benefits include deducting the interest on your mortgage and maintenance costs for your investment property.

Paying Down the Loan

Every payment you make on your loan decreases what you owe and increases your net worth. However, the initial payments are mostly interest. If you plan to keep the property for the long-term, you’ll increase your net worth over time. However, if you have the means, you can pay extra on the principal of the loan and increase your net worth much faster. And, because you are not borrowing as much over the 30 years, you’ll save on the interest payments. You can use any one of the mortgage payment calculators out there to see just how much interest you’ll keep in your pocket if you pay extra on the principal every month.

Combine any or all of these wealth-building tactics and, even with one home that you live in, you’ll find that you increase your personal wealth significantly. When you have several rental properties, you’ll find that you can drive personal wealth rather quickly if your initial investments are sound.