Home reno and flipping shows on TV highlight some of the challenges of completing these types of projects, but until you have done one yourself, you don’t really know what's in store for you. Although you should always prepare for surprises when flipping a home, the more research you do, the better prepared you will be for the unknown.
6 Lessons Learned from Flipping Homes
Learning from the lessons of others is one way to avoid some of the most common pitfalls with fix-and-flips.
1. Expect the unexpected.
You never know what’s hiding behind the walls of a home. Always have a professional inspection performed before you buy so you know what you’re getting yourself into, but know that you still may discover some surprises along the way. Examples of what you might find include:
- Roof leaks
- Electrical issues
- Structural problems
- Hidden water damage
2. Build extra funds into the budget.
Even the most experienced flippers will face unexpected expenses. Add a buffer to your budget so you have some extra funds to use while still making a profit on the flip. If you don’t have to use it, it’s an extra bonus, but if you do, it may allow you to still make money on the flip. Projects almost always go over budget, not under, so make sure you have sufficient funds on hand to cover overages if they occur.
3. Build extra time into the timeline.
In addition to costing more than initially budgeted, many fix-and-flips also take longer than you expect, even with an experienced contractor. Factor in extra time for the various challenges that are out of your control, such as:
- Delayed materials
- Overbooked subcontractors
- Weather delays
- Poor time estimates
4. Pay attention to the market.
The real estate market is in constant fluctuation. What was a good value when you purchased the home could change by the time you’re ready to sell it. Pay attention to the market and be ready to shift your plans. Depending on the situation, some of your options might include:
- Sell the home before the renovations have been completed.
- Reduce the budget and shorten renovation time if you're trying to get the property on the market in time to capture the summer rush.
- Complete the renovation, convert the loan to a regular mortgage, and maintain it as a rental property.
- Build out the house to follow trends. For example, some builders have changed floor plans based on shifting wants and needs during the COVID era.
5. Keep an eye on the bottom line.
Every unexpected cost eats into your potential profit. Have a good understanding of all of your costs and the financial impact of every decision you make. This includes projects that will delay the timeline because every month you delay is another month of loan payments.
6. It might not be easy to secure financing.
Even if you have great credit and a solid history of paying down debt, you might not be able to get a fix-and-flip loan from a conventional lender. It isn’t about your relationship with the lender but rather the limitations on the types of loans they are able to finance. Other factors—such as the condition of the property—play a role, and fix-and-flips don’t always meet the criteria for conventional lenders.
If you have bad credit or difficulty providing proof of income through tax returns, getting a conventional loan is even more challenging. Fortunately, you have options. Hard money lenders are able to finance deals that conventional banks cannot. The loan is based on equity, so if you own property, you can probably get funding for your fix-and-flip.
Fund Your Fix-and-Flip with Socotra Capital
Socotra Capital offers flexible rehab loans to fund your fix-and-flip project. As a direct lender, we service our loans from start to finish and work with borrowers to ensure their projects are successful.
To learn more about how to get financing for your next flip, read The Borrower’s Guide: Fix-and-Flip Hard Money Loans today.