A large segment of today’s housing market is fueled by real estate investors seeking to turn a fixer upper into a nice, tidy profit. If you manage to avoid the common rehab pitfalls, you can turn a profit too! But know, mistakes are not made by properties. Mistakes, most often, are made by novice investors and the assumptions they employ on their way to becoming a seasoned investor.
The good news is that the most common mistakes investors make are entirely preventable…if you do these seven things:
1. Underestimating The Project Scope
Underestimating the time, hard costs and the amount of work involved is one of the surest ways to drain the profitability of your flip. You estimate four months of work – it takes six. You estimate for some new shingles – you need a new roof. You estimate your property will sell in four weeks – it sits unsold for three months. In short, each inaccurate estimate makes a direct impact on your bottom line.
2. Underestimating Or Ignoring The Non-Material Costs
Drywall, flooring, windows and landscaping aren’t the only costs that will go into your flip. To turn a profit, you will need to anticipate all the other “soft” costs you’ll incur including: appraisals, closing costs, building permits, inspection fees, realtor costs, property taxes and utilities, as well as interest from the real estate investment loan.
It’s easy to fall into the trap of thinking: “those will be covered when I sell”. But that’s just another way of saying: “it’ll come out of my profits.” Wise investors anticipate those costs up front and build them into their overall budget.