House flipping is a quick way to make money through real estate—for those who know just how to do it right. While it’s often looked upon by inexperienced real estate investors as a get-rich-quick scheme, even experienced and seasoned house flippers still forget elements that will make house flipping successful.
We invited Winston Deloney, an expert real estate investor in Chicago, IL, to let us into the world of house flipping.
What is House Flipping?
House flipping works on two business models: buy low, sell high, and buy and sell, rather than buy-and-hold. If these two requirements are not met, you are not flipping a house.
House flipping can only be considered to be successful when you make money from it and buy low and sell at a high price—as quickly as possible. Many people get excited about house flipping—understandably so because many authors and TV shows have made house flipping so glamorous it looks like a Hollywood action movie scene.
The fixer-upper has become one of the most televised real estate strategies in the United States. However, real estate—especially house flipping, is not Hollywood-glamorous, and many inexperienced and even seasoned house flippers still overlook some essential elements.
4 OVERLOOKED ELEMENTS SEASONED HOUSE FLIPPERS OFTEN FORGET.
- The scope of work
Inexperienced house-flippers are not the only ones who underestimate the scope of work involved in flipping a house. Even seasoned house flippers may get too confident and assume that a previous project’s success will be assuredly replicated in the new project.
Of course, when reality hits and the bottom line wrecks, it will be too late to go back. From plumbing to general renovations, painting, water pressure, heat, carbon monoxide issues, community board issues, neighbors, electricity, asbestos, appliances, and a host of other works that may seem never to end; the workload involved in flipping a house is endless.
If you work with different contractors on a project or need a contractor to always give you a scope of the work required, you are way in over your head.
When working on a project where time is always of the essence—like house flipping, you may have an ulcer just dealing with contractors. A lot of contractors notoriously miss deadlines—and if you do not understand how these laborers work or cannot do some of the work yourself, you will be faced with a nightmare.
- The Market
It’s easy to underestimate the market. California is different from Alaska, and bureaucracies and red taping in each state differ.
It will be folly to assume that the city council will not be your worst nightmare when trying to get work done and beat the deadline. While renovations are inherent house flipping problems you will face, extrinsic problems include municipal guidelines, city and town construction guidelines, and municipal approvals.
It’s a long list that gets worse if you are dealing with a complicated set of people. You may need to work with a local attorney who knows his way around these guidelines and can help you fast track your progress.
- The Finance
Another often overlooked element is finance. Building projects are usually quick to go beyond budget—especially if you have to hire too many people.
House renovations costs, legal fees, delays, contractor fees, and many other expenses are capable of thoroughly reducing your profit or leaving you with a loss altogether.
- The Profit
Seasoned house flippers can also overestimate a house value and pay too much. Often, people who spend too much for a property are either misinformed about the community and neighborhood the property is located or have thoroughly overestimated the property’s value—and profits.
An overpriced property will cut into your profit, and if the property needs too much work, the expenses become costlier. While many Americans calculate their homes’ value with online tools, you are advised to get a professional appraisal—if it is within budget or hire a local real estate agent for comparative market analysis.
