The world of real estate can be very exciting. I often call it real estate investing adventures! Many new real estate investors love watching all the fix up shows on television. There are so many programs that show you how easy and fast you can make money buying, fixing and flipping houses. If it only was that easy to get a house completed in the 30 minutes we often watch on television. When you want to Flip houses with real estate investing there are choppy waters sometimes. You must be able to navigate the rough waters and watch out for those rouge waves!
I put together my list of the top 10 issues new real estate investors may encounter when doing their first buy, fix and flip (BFF):
BFF Issue # 1 – Never fall in love with a property!
Rule #1 has to be to never fall in love with a property! Often new real estate investors may be looking for a great deal and they see an awesome property that they love. Never let your emotions get involved with your decisions. You must remember this is business! Make business decisions not emotionally driven decision about the property!
BFF Issue # 2 – Never overpay for a property!
You may really want your first deal to happen but never overpay for a property. If you do you will be doing all that work to learn some valuable lessons rather than to make a profit. The price has to be a deal today, not what it might be worth in the future! Remember the cliché with real estate investing, you make money when you buy, not when you sell!
BFF Issue # 3 – Don’t believe everything you watch on television!
I really enjoy watching all the fix-up programs on television. You just need to remember that not all issues with be resolved within 30 minutes. There are many issues you might run into and things always do not go as smooth as some of the television shows you may enjoy watching.
BFF Issue # 4 – Budget for the Ut-Ohs! Unforeseen Rehab Expenses!
When you walk a property you attempt to estimate the cost of renovation to the best of your ability. However, we often run into issues we did not see when going through a home. I call this items the “ut-ohs”. If you have too many ut-ohs you will probably not make a profit on a property. Always try to walk the property and have a licensed home inspection go through the property if you are not sure about things especially some of the big ticket items like plumbing, electric, HVAC, roof, etc.
BFF Issue # 5 – Understanding Rehab Costs – Materials and Labor!
It is imperative you have an understanding of what renovation will be. You really need to understand the total cost which is always the materials + the labor to do the work. It is critical you get at least 3 estimates to compare and contrast the same quality of work and the same materials being used. Many new real estate investors fail to estimate renovation costs appropriately.
BFF Issue # 6 – Create a Budget and make adjustments where necessary!
Often new real estate investors may go into a flip project and not even have a budget to guide them through. You can experience cost overruns and you do not make adjustments you will eat into your profit. Each project should be a learning experience to understand how to make the next project go smoother, on budget and at a faster pace.
BFF Issue # 7 – Create a Timeline and there will be delays!
Create a realistic timeline for your project and manage it to the best of your abilities. There will be delays with products that might be special orders or delays with contractors. Understand delays are part of the business when it comes to flipping houses so make sure you create a realistic timeline
BFF Issue # 8 – Keep records of everything you buy and do!
Keeping complete and accurate records of everything you do with each real estate project will not only make your tax preparer happy but will also enable you to learn actual costs for each project you do. Having a better understanding of costs will allow you to make even better estimates in the future. It is important to understand how much profit you actually make from each deal you do because that understanding will make for better overall decisions when creating future budgets for other projects.
BFF Issue # 9 – Working with contractors
Working with contractors can sometimes take addition time and effort to ensure you get a realistic quote for the work you are proposing to be done. Always get a complete scope of work, have everything in writing and make sure both parties understand the payment plan for completing the work.
BFF Issue # 10 – Use realistic comps to list the house so it sells!
You want to sell your property and not just list your property. If you over price your property when you go to sell it, it may sit on the active market for an extended period of time. Make sure you ask your realtor to provide you with realistic comparables “comps” when you are making the offer. This way you have an understanding of what you can realistically sell the property for once you complete the project.
You can make money when you buy, fix and flip a property. Just make sure you try to limit your risk and learn from each and every project you tackle. My worst day in real estate is still better than my best day working in corporate America. Go make your real estate dreams a reality and live in the moment with no regrets! Believe and Achieve! – Joe Jurek