What Investors Get Wrong About Property Flipping Projects

Real Estate

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In more than 15 years as a real estate agent, broker and investor, I’ve learned a lot. Some of the most important lessons have come out of making mistakes, my very clearly biggest mistake in particular: In 2006, I decided to flip a house completely by myself.

At the time I was a real estate agent, and I had flipped a few houses before in partnership with my dad. This time around, I believe I would save and make more money by going it alone and decided to buy, repair and sell a flip on my own — in what turned out to be the worst six months of my life.

The Myth Of Savings

I made the mistake a lot of real estate investors make: I thought that by working harder physically, I would save money on labor cost and make more money in the long run. Here is the problem with that thought process:

• I was not a contractor, so it took me three times as long to complete the work as it would have taken a professional. It costs a lot of money to flip a house, and every day you own the property, costs pile up. There is interest on the loan, property taxes, insurance, utilities and maintenance, and at the time our real estate market in Colorado was starting to decline. I lost any savings I would have gained doing the work myself because it took me so long.

• Also because I was not a contractor, the work I was doing was not amazing. A skilled, qualified contractor would have done much higher quality work that looked more attractive to potential buyers.

• I was not selling houses as an agent or finding more deals to flip because I spent all my time on that house. This cost me tens of thousands of dollars in opportunity costs.

• I drove my soon-to-be-wife crazy because I was cranky all the time. It was fun working on the house for about two weeks, but after that it was exhausting and much too challenging.

Essential Truths About Flipping A Property

I bought the house for $120,500 and ended up selling it for $164,000. After paying the carrying costs, selling costs and construction materials, I lost money on the house — and I basically worked on it for free. I made many mistakes on this deal, but luckily they could become learning experiences. For real estate investors who are deciding whether to fix-and-flip a house up themselves or not, consider this:

• Old houses tend to have more problems and need more work than newer homes. If you are buying a house to fix up, consider starting with a small project on a newer home.

• The longer you own a house you plan to flip, the less money you make. The expenses pile up, and the market can change in a bad way. Focus on fixing up and selling the house as quickly as you can. Usually, this means hiring qualified people to work on the house and not doing the work on your own.

• Our time is usually more valuable working on the business and not in the business. It is impossible to scale a business when you are doing the manual labor.

• If you really love to fix up houses, it might make sense work on them yourself. However, you still need to spend time focussing on your business and hiring help if you want to do multiple deals at the same time. If you don’t like fixing up houses, there’s no reason you should.

Now, I run my own brokerage, have rentals and flip between 20 and 30 houses a year. My flipping fail taught me that delegation and hiring the right people are key to scaling your business. I refer clients to other agents and do not sell houses anymore, I know my time is better spent finding deals so I no longer do manual labor, and I outsource landlording to property management companies because the cost is worth the headache it saves me.

When flipping houses or fixing up rentals, investors need to understand how their time is best spent. On the surface, doing the manual labor yourself seems like it might save money. In most cases, doing the work yourself will cost money. You could be spending your time finding more deals, earning income, finding better financing or building another business. In most cases, a contractor will complete the work faster and better than a weekend warrior who is learning on the fly. Before you tackle a solo flip, consider the true cost of your effort to save a few bucks.

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