Real estate speculation is gaining popularity as a form of real estate investment. The truth of the matter is that it is one of the more fun ways for many investors who are just “eager” to get their hands a little dirty. The hard-earned money involved in these deals, while attractive, can also be daunting in some cases if skills are lacking.
If you are one of the many people in the world who consider the appeal of flipping real estate, you should take care to avoid the following things to minimize your risk while maximizing your potential for success.
1) Don’t fail to perform a qualified inspection of the property before any money changes hands. If you don’t have any idea of the type of work that needs to be done, then you are unlikely to be able to make an educated estimate of the costs involved in rehabilitating the property.
2) Don’t underestimate the budget for renovations. This is one of the most common mistakes that even seasoned professionals can make, and if you’re not careful and don’t stick to a planned budget, it can mean the difference between a profit and a loss on the property.
3) Don’t overestimate your abilities. This is another common mistake. Just because you’ve seen something on TV doesn’t mean it’s something you can do yourself. It costs more money and time to have someone come in and fix your mistakes than it does to have a professional do it from the beginning. That doesn’t mean you can’t learn how to do some of the work, or that it will be cost effective to do so. The trick is to determine where your skills and abilities can actually take you, not where you hope they will take you. Plumbing, electrical and structural work is usually best left to professionals unless you have specific experience or training in those areas.
4) Don’t be irresponsible with your schedule and budget. Real estate investing puts you in the position of the boss, and while this is often easy when it comes to driving others, we tend to have a little difficulty when it comes to being responsible for our own time and money. Unfortunately, not doing so can be a very expensive blunder.
5) Don’t forget to keep up with receipts, bills, etc. and check the facts and figures daily. It’s all too easy to let a few trips to the local home improvement center escape close scrutiny. Add a few such trips a day and you can easily find thousands of dollars missing from your budget with no paper trail to explain the transactions. You may also find tools that don’t work, or are not needed in the project. These items usually cannot be returned without the original receipts.
6) Avoid having too many supervisors on the project. If this is your ball game, then you need to run with it, not have 10 people giving conflicting orders. Schedule regular meetings to discuss progress and any adjustments or changes that may be needed.
7) Avoid poor planning. This is the step that is the difference between success and failure for many would be house flippers. Plan each step of the project in a logical order. You don’t want to paint the ceiling or walls after you’ve installed the new floor. You also don’t want to tear out walls after painting them in order to replace plumbing. Plan things out in the proper order and allow a day or two between subsequent projects in case you need extra time. The last thing you want to do is pay a group of contractors to stand around and wait for the paint to dry so you can start the next step.
There are risks associated with any type of investment. While real estate is one of the greatest things in the world that people can invest in, there are still risks involved. However, following the advice above can greatly reduce those risks and give investors the opportunity to have great expectations when all is said and done. Whether this will be your first flip or your fortieth, there is a lot to review in the steps above that will reaffirm much of what you have learned along the way.