Flip or Flop? 5 common mistake fix and flip loans
Pay attention to this common mistake fix and flip loans that could push you over or under.
With the popularity of fix-and-flip loans television shows that make the process of rehabbing appear as easy as a breeze, home flipping is an increasingly popular trend that new investors are rushing into and getting fix-and-flip loans. However, the images and smoke of Hollywood aren’t the full reality; it’s just not as easy as it appears. There’s a chance that you’ll make little or no money or even a substantial loss if you’re not cautious. The most important thing is to plan, research, and follow through. The five following mistakes are the most common mistakes many novice flippers make without realizing it. It’s normal to make minor mistakes in your deals; however, if you can avoid the mistakes listed below, your chances of completing a smooth rehab are higher.
The cost of buying a house is too high.
It is the most common way to lose your flipping plan. Understanding the numbers, being confident, and sticking to your numbers is important. If you’ve failed to get a deal, ensure you’re not buying the property because you are frustrated. Keep your head clear and your emotions in check when making an offer.
Inadequately estimating the rehab budget:
The two most significant costs when you flip a property are the acquisition and rehab costs. If you can’t figure out how much a renovation will cost, it’s easy to spend less than you have. If you don’t know how to figure out how much the renovation will cost, make sure you do your research and get multiple bids from contractors.
In the process of renovating your home, you can over-renovate it.
Most first-time homeowners tend to make this mistake. Naturally, you’re enthusiastic and want to create the most desirable house in the area. But don’t forget the main goal of achieving ROI (return on investment). Always do a cost/benefit study and determine whether it’s worth investing more in extra features.
Not doing enough research on the neighborhood.
It is important to know the numbers. Properly determining the ARV (after repair value) is essential before buying this distressed home. Many investors do not thoroughly investigate the neighborhood and examine the properties around them. Even if an investment property is located within the same community, this doesn’t mean it will always work as a valid comp. Neighborhoods are prone to change dramatically from street to street and Block by block.
Over Leveraging –
Just because someone gives you more funding does not mean you must always accept it. Over-leveraging happens when you take out too much on your investments and cannot pay your mortgage on time, resulting in foreclosure. Your primary concern should be your rehabilitation plan rather than trying to figure out how you’ll pay for your next mortgage. Be sure you’re using only the amount you can handle. Make use of leverage to benefit you, not to your disadvantage.
Are you prepared to complete your next fix-and-flip project? Whatever your investment strategy Commercial Lending USA can help. We have good long-term credit products to help stabilize rental portfolios and credit lines to help pay for new purchases. For more information about how Commercial Lending USA can help grow your rental and rehab business, please call Eric Kang at (855) 365-9200 or email: email@example.com