Long-term success in real estate investing requires knowing a lot about yourself and your strategies. It requires you to have patience, understand your budget, and build a real team. If you’re going to tackle fix and flip projects, you need to avoid the predictable mistakes new investors fall into.
10 Real Estate Investing Mistakes Fix and Flip Investors Need To Avoid for Long-Term Success
1. Not Managing Your Expectations
A lot of people are very aware that they shouldn’t expect to get rich quick from investments. And yet, in the backs of their minds, they’re hoping for it. The reality is that real estate investments take work. With time and experience, and a lot of perseverance, real estate can become a profitable and fulfilling experience.
When people expect instant results, it’s a lot harder to stay the course when obstacles inevitably come up. It will take time to research properties, find the right ones, actually work on them, and see a profit. The people who understand this and are prepared for it are more likely to see long-term success.
2. Not Defining Their Strategy
Smart investors have an overall strategy. Sometimes investors resist defining their strategy because they want to maintain flexibility to respond to new opportunities in the market. You can still do this and have a defined strategy. Focus on defining what your end goals are for your investment portfolio.
Define what kinds of investments you’re looking to make. When this kind of planning is avoided investors end up with wildly different properties without a plan for moving forward. This doesn’t allow investors to take what they’ve learned from one investment into the next. With a defined end goal, you can respond to opportunities that allow you to create a portfolio in your best interest.
3. Rushing the Research
Smart investors prioritize proper research over the risk of missing out on a property. Don’t rush into a deal without knowing the neighborhood, the property’s history, and the local market. Understand what your plan will be for the project in the long term and how your budget will handle it. Ask yourself carefully about whether you want to spend the next six months to a year working on this investment.
If you can, network with others and discuss your projects with trusted friends. They’ll ask you questions, and if you don’t have the answers, you’ll realize what you still need to research.
4. Going It Alone
A strong work ethic can get you far in real estate. The fix-and-flip business model will certainly benefit from a do-it-yourself attitude until it becomes a hindrance. It’s important to know your strengths and to focus your time there. You may need to cut costs by learning new skills.
And yet, you will need to find experts that you trust to handle a lot of the work. You need to connect with an appraiser you can trust, electricians, and insurance representatives. You will need a financing company you trust, and possibly a lawyer and financial advisor. You’re going to need to network, ask for help, and build a deep bench that will have your back.
5. Underestimating Costs
Like anyone purchasing real estate, you will need to plan for all the costs associated with your plans. These include property taxes, home insurance, regular maintenance, and unexpected repairs. If you’re flipping the home, will you also be staging it with furniture? You’ll want to have a plan for that expense.
Are there local permits you’ll need to pay for? Make sure that your budget has room for repairs or timelines to go wrong.
6. Overestimating Profits
What is the realistic potential return on investment? Experienced investors are going to have a much better time estimating that number than someone new to the work. Don’t make the mistake of assuming that property values will continue to rise because they have recently.
Naturally, most investors are going to run the numbers and see what is possible if everything goes right. That’s a fun number to see written down in front of you and dream about. Once you’re done with that, run the numbers with the bare minimum. As you move forward, work with that lower number in mind to avoid overspending or getting carried away.
7. Ignoring Opportunities for Real Estate Education
Every investor is always learning more about the market. As you become seasoned, you will develop habits for learning more about your local market and opportunity. This is how investors scale over time. If you’re a new real estate investor, you have even more opportunities for learning that will elevate your strategies.
You can learn more by listening to real estate podcasts, reading blogs, and reading real estate books. You can also attend workshops and seminars. There are plenty of these available via online streaming. Do not make the mistake of ignoring your education in your industry.
There are so many cool and interesting renovations that can be done but that don’t necessarily improve your ROI. You may find personal pride in creating a home that all its neighbors feel jealous of. There is satisfaction in doing that kind of work. However, the time and money you spent doing that could have been put toward your next project.
If you can afford a renovation and believe it will improve your return on investment, do it. If either of those contingencies isn’t true, ask yourself why you need to do it.
9. Skipping Property Insurance
New investors are facing a lot of expenses and so under-insuring or skipping insurance sounds like a way to save. Keep in mind that many areas have local laws that require insurance. Skipping homeowner’s insurance in these areas can lead to legal issues which will cost time and money. The laws aside, home insurance helps protect you from unexpected, significant repairs.
It’s true that you are probably hoping to own your fix and flip property for a short period of time. Many people feel that the timeframe means that the odds of needing their insurance are low. However, weather events or bizarre accidents cannot be planned for and can be devastating. This is especially true if you don’t have insurance protecting the investment you made in the property.
10. Assuming Everything Will Go Right
Your real estate investing plans require contingency plans. Things go wrong with investments every day and they also go wrong with home renovation projects. There are risks here and those who stay with this business model long-term and see success learn to ride them out. Part of that is having a contingency plan for unexpected expenses, market downturns, and timeline changes.
Your renovation work may take longer or the property may not sell right away. If this happens, will your budget be able to handle three or even six months of upkeep on the property? If a major weather event causes damage to the property you’ll need emergency funds to handle repairs. You can’t plan for every contingency, but planning for extra time and budget will help you stay the course.
Mistakes will naturally happen in any business you take on. Having patience and learning from them will help you become a better real estate investor and see true long-term success. When you take the leap to grow a real estate business, you need a financing company that knows your industry. Contact Turning Point Lending today to discuss fix and flip loan options designed for your needs.