Don’t we just love the HGTV “pros” who buy a house, work for a week and sell that very same home for a $100,000 profit? This is all realistic, right?
If you’re new to the real estate flipping business, or even an old pro, there are constantly new tactics to learn and lessons to be had. You’re never truly done learning in the real estate business because laws, markets and designs are constantly changing. But, here we are, Spring 2016 and what can we tell you that our clients are learning each and every week? Let’s break down some of the pitfalls we see investors falling into regularly this year.
1. Learning the Market: Just because you think a three bedroom home will sell better than a two bedroom home and all of the books you read told you this is a fact, doesn’t mean it is a universal rule. Make sure you know what people in your market are buying. Perhaps there is a large demographic of the population heading into retirement and not in the need for three bedrooms. That’s just too much house for them. Make sure you know what your buyers need.
2. Run the Numbers: While CEB Capital does our best to help you before you purchase your investments to run your deal analyzer and prepare you for your bottom line, there is still a significant about of preparation you need to do and learn. For example, if your checklist consists of: Buy a house for $100,000, spend $20,000 on improvements, sell it for $150,000 and earn $30,000 profit, you clearly haven’t done all the math that’s needed.
3. Become a Business: Buying and selling real estate as a sole proprietorship has endless amounts of dangerous liabilities for both a real estate investor and a private lender. If something goes south, not only are you broke, but your personal assets are also vulnerable to danger. Becoming a business, like an LLC, will protect your personal assets if your business does not go the way you intended. This is a simple process that can be done online in a matter of minutes.
4. Keep a Portfolio: Not everyone can buy real estate in cash. For those of us regular people, we need funding. In the land of real estate, funding needs to happen quickly. In the business of flipping, it needs to go off without a hitch. So, as you are buying and selling, make sure you keep thorough documentation in one place of your projects and financials. This makes it so much easier to get things completed.
5. Get that Pre-Approval Letter: Speaking of time being of the essence, the last thing you want to do when you find that perfect property is rush through the pre-approval process and scramble to get that proof of funds letter. Get your lender the initial paperwork ASAP to get that proof of funds letter so you’re ready to make an offer and don’t miss out on those bargain basement deals.
Have more to add? Please, let us know what’s worked for you and what you’re still learning. We are always here to help!