Over-Improving the Property
One of the most common mistakes that can quickly turn a house flip into a nightmare is not knowing how much to improve the property. Specifically, new house flippers usually go too big in renovations, spending far more than they should. Overspending can lead to budget issues and cause you to lose profits when you sell. Unless the property you bought is in a very high-end area, there is no reason to go too upscale. The best improvements will bring the property up to the level of the other homes in the neighborhood – but not too much beyond that.
Dealing with Property Damage
Another situation that a house flip can become a nightmare is if you encounter vandalism, theft, or property damage. If a property has been sitting vacant for a long period, this issue could be more likely to arise. House flipper Carol Sankar of Charlotte, NC, describes one project in which the home was burglarized multiple times during the remodel. One day near the end of the project, she got to the house to discover that the kitchen cabinets had been stolen right off the walls. A dishwasher and a refrigerator also vanished. Because the property was in an area with few security measures and a low police presence, there was little Sankar could do to get back her stolen materials and appliances.
Costly Mistakes
A third situation that can make a house flip haunt you is when making expensive financial errors. For example, house flipper Daniil Kleyman in Richmond, VA, obtained a project house for what he figured was a real deal. An experienced investor, he did a preliminary market assessment on the property and expected that he could remodel and sell it for five times his cost. Unsuccessfully, Kleyman made a series of errors that resulted in losing money on the flip.
Not only did the first contractor he appointed walk off the job with his money and without doing the project he was hired to do, but Kleyman had also used the wrong comparable properties when estimating his post-remodel sales price. He had to list the property for far less than he had anticipated. And then the property was burglarized, stripped to the walls, plumbing broken, and flooding in the basement. After fixing the damage and replacing the stolen appliances and fixtures, Kleyman was eventually able to sell the house at a loss to a buyer who wasn’t enthusiastic.
Avoiding Flipping Nightmares
Stories like these reveal just a few of the concerns that come with flipping houses for resale. These investors would have done much better from the beginning if they had accurate market data, proven construction professionals, and the expertise of property management professionals. In Kleyman’s specific instance, by first communicating with an industry expert like Real Property Management Pocatello, he would have garnered a detailed market assessment before getting the property. He would have identified the property’s market value from the outset, which might have made him change some of his decisions.
A professional Chubbuck property manager would have also granted Kleyman the names of trusted remodeling and repair vendors in his area and would have checked in with those vendors occasionally, greatly reducing the chances that the contractor he hired would take his money and run. Lastly, the team would have accurately priced and marketed his new property for him, finding quality tenants who were able to pay a competitive monthly rental rate for as long as Kleyman wanted to keep the home. The value of this information and expertise is hard to overstate – it could mean the difference between a profitable house flip and a flipping nightmare.
With local property management on your investment team, you’ll have the aid of experts dedicated to making every one of your properties one of the best long-term investments you can make. For more information, contact us online today.
Originally published on July 12, 2019.