There's a lot of moving parts when it comes to real estate investing and flipping houses. Someone that has been in the game for a while will likely have ironed out their processes. Some have even learned their methods the hard way through trial by fire. Others, however, may try and rush the process causing there house flipping opportunities to fail.
We're going to cover the five most prominent mistakes beginners make while trying to invest in real estate. By having a good understanding of what these common mistakes are you can build steps in your real estate investing process preventing a flop.
Here are some of the fundamentals
Real estate flipping is the process where an investor will purchase a house at a reduced rate with the intent to sell it for a profit at a later time. The flipping process usually requires modifications to the home as well to increase the value of the final resale price. The strategy is used widely and is very profitable. There are even some instances where investors can purchase a home and flip it almost immediately from a rapidly appreciating market without significant modifications.
Experienced investors sometimes work together and purchase groups of properties to flip with plans to develop a steady flow of income and build an investment fund. The same principle applies to any other industry in that you want to buy low and sell high. Some of the more prominent players also get to a point where they do not have to use any of their own money. The investment fund is what allows them to bankroll their purchases.
When you're new to the industry in your just starting out, you may not have access to that kind of money. In fact, you may be using your own or borrowing money from someone you know. When you're new to the industry using your own money, you want to move quickly. A Buy and Hold strategy may not be the best option for you.
That's a high-level look at a game plan, let's look at what can go wrong.
1) Lack Of Funding:
The last thing you want to do is dabble in the real estate investing industry. You need to have skin in the game, but you need to be very smart about it. Acquiring the property is only your first expense. Working with no money down deals require experience and are not for the faint-hearted. You will have to dig deep to find this kind of deal, and it can claim a lot of your time. You will need to have advisors with you to make the process efficient otherwise the things can drag on far too long. You need to remember all the other costs involved including taxes utilities and even holding expenses if you paid cash for the property.
2) Not Allowing Enough Time:
If you're just starting out without a team, you'll need to allow yourself enough time for renovations if they're required. The renovation portion is probably the most difficult because it's where you have the least control. There can be unforeseen costs involved with the work. For example, a plumber may show up one day stating he can't do anything until the electrician finishes in the area. The plumber may not be able to come back for another six weeks. Then you may need to deal with inspections.
3) Having The Right Skilled People:
It's one thing to have laborers provide top quality work, but it might not go smoothly with tight deadlines. Enjoying this part of the process can be difficult at best. Having the skill sets to roll up your sleeves and do some of the work yourself is a must. You must be willing because there will be days when things go wrong on the job site, it's just a part of it. Try to build some redundancy and have some other people on a short list to call if you need them.
4) Knowledge is key:
Having the right knowledge is everything. If you lack experience in a particular area, you better have access to somebody who can help you. Having a mentor in your local area can be a big help. You can save yourself a lot of grief by taking the time to find somebody that can help guide you in your city.
5)Having The Patience:
People that have been in the game for a long period know it takes time to find the right property. They also live by the strategy last money in first money out. The novice or beginner can get emotional and may purchase property right away thinking it's the right one. There are no shortcuts in this industry.
This industry is very profitable if you have the right processes in place to make it that way. The key to this industry is to have an established system in place making result predictable. The more systematized you are with a clearly defined exit strategy, the better off you're going to be.