Most Common Flipping Challenges and How To Combat Them

So, you’re looking to flip a house? I’ll be honest with you, there are going to be some challenges along the way. To flip a house means to buy it cheap, renovate it, and to sell it quick, ideally before the first mortgage payment is due. This can be a very profitable project if done correctly. We’re here to help make sure the process goes as smoothly as possible for you. 

Here are the most common challenges faced by a house flipper and how to combat them.

          1. Knowing the Housing Market.

Being able to interpret the housing market is a skill every realtor should have. The state of the market can either make or break your project. It may not be the best time to take on a new project. Perhaps the demand is low or mortgage rates are high. As a real estate investor, it is crucial that you stay aware and on top of the ups and downs of the real estate market, and optimize your returns the moment you flip. 

          2. Finding the Perfect Property

If you think there is a lot to consider while watching the housing market, that is just the tip of the iceberg when it comes to considering the perfect property. Is it in a desirable, in-demand area? Are the schools good? What kind of shops are located around the neighborhood?

Be sure to take into account the risk and reward of the property. Take into consideration any repairs/renovations you’ll need to make. What are you going to gain once it is all said and done? Is rent something that will generate you a net annual profit? Can the property be sold for more than you’ve spent?

          3. Making the Right Offer

In order to make a profit, you need to buy it below market value. In an ideal situation, you would be looking at a home that is already listed with a below market price. If that is not the case for you, negotiation will be necessary for you to bring down the price and bring home a profit.

          –Communicate with your local real estate agent. Share your plans for the property and ask for a comparative market analysis. Get an idea for what other properties in the neighborhood are selling for. How much do you think you’ll be able to list it a few months down the road?

          –Find a BPO. A broker’s price opinion is an official report designed to help you understand the estimated value or possible selling price for the property. It will take into account past and current comps, and may even evaluate the physical condition of the property. 

          –Consider an appraisal. This option is the most pricey, but the most thorough. This means, an appraiser will come to the home, and walk through, giving you an analysis of the condition and it’s features to give you an accurate estimated selling price.

          4. Coming Up With the Cash

Going into a project it’s always a good idea to have a Slush Fund. This is a little pocket of money that you have in case anything goes south. Even if you’re not going to buy the property in cash, that slush fund will come in handy down the road. Typically mortgage lenders require a hefty down payment for real estate investors (25% or more). 

Closing costs, rehab expenses, property utility bills, contractors, etc. These are all expenses that comes with flipping a property. It’s always a good idea to have a bigger financial cushion than you need. Just in case you don’t sell as quickly as you wanted to or you experience delays, you’ll have that slush fund to keep you afloat. 

          5. Choosing the right team.

If you’ve been in the real estate game long enough you have either fired a contractor or know someone who has. It is so typical that it is comical. Unfortunately, these guys can make or break your project. They will determine how long the project takes, how well it turns out, and if you can even sell it for as much you were hoping for. 

Because these contractors are so crucial to your project being successful, be wary of who you hire. Verify their experience and training. Ask to see a portfolio of past projects they’ve worked on. Gage if they appear to be trustworthy and reliable. Get referrals from past clients to vouch for the quality of their work. 

          6. Managing It All

When taking on a project, it can be a bit overwhelming at first. If just finding the perfect property wasn’t hard enough, you’ll also be hiring the contractors, purchasing materials, listing the property, marketing it, and oversee everything else in between. Try doing that with three or four more properties. 

Trying to juggle so much at one time, it can be easy to miss little details. You can create a check and balances system before starting each project to ensure nothing falls through the cracks. 

         –create detailed checklists for contractors 

         –schedule weekly walk-through’s 

          –appoint a lead contractor with whom you trust.

The main goal is to work smarter not harder. Predict the issues and set in solutions before they occur. This will enable you to salvage valuable time and resources.

          7. Fighting the Clock

Time is going to be your biggest enemy when it comes to flipping a house. Every second spent working on the house is money down the drain. Unforeseen problems are inevitable, so it is extremely easy to fall behind schedule. 

Set a contingency plan. Know who you’ll be able to call in case you need an extra set of hands to deal with the problem at hand. It may even be beneficial for you to have a pre-established selling plan in place. The quicker you can execute, the quicker you can collect that ROI.

          The Bottom Line

Flipping houses isn’t easy. However, if done correctly, flipping houses can be very profitable. As long as you have the resources and are smart about the properties and projects you decide to take on. You should be well on your way for flipping success.

By: Mike Pugliese