Are you thinking about investing in fix-and-flip properties? These properties can be a great way to earn a profit. In fact, 2021 data show house flips generate an average gross profit of $65,000. But while there is potential for a big payoff, there is also the potential for significant problems.
And although some investors can avoid these problems and come out ahead, others find themselves in over their heads, struggling to complete a flip successfully. So, what can you do to reduce your chances of finding yourself in this situation? Here is an overview of some of the most common struggles investors face when flipping properties and how to sort them out.
Finding the right property.
The first step in flipping a property is finding the right one. You’ll want to find a property that needs work but nothing too major. If the property requires significant repairs, it will eat into your profits.
The best properties are ones that only require cosmetic updates, like new paint and flooring. If you choose a property that needs significant work, you may have to spend more money than you anticipated, reducing your revenue. You’ll also want to select a property in a good location. A property in a desirable neighborhood will be easier to sell than one in a less desirable area.
If you’re having problems finding the right property, try expanding your search. Look for properties in nearby towns or even different states. With a broader search area, you’ll have a better chance of finding the right property.
You can also try working with a real estate agent. A good agent will be familiar with the local market and can help you find properties that fit your criteria. This way, you can focus your search on properties that are more likely to bring a better return.
Dealing with permits and inspections.
Another common challenge when flipping properties is dealing with permits and inspections. Depending on the municipality where the property is located, you may need to pull permits for any renovations you plan on doing. These permits can be time-consuming and costly to obtain.
However, you can make the process easier by working with a professional familiar with the permit process. An expert will know what permits you need and can help you get them quickly. You can also contact the municipality directly to find out what permits are necessary for your project.
In addition to permits, you may also need to pass inspections by the city or county. These inspections ensure that the property meets specific standards and that the renovations are up to code. If you fail an inspection, you may need to make changes to the property, which can delay the completion of the project.
You can avoid problems with inspections by being familiar with the requirements in your area. You’ll also want to hire a contractor who is experienced with local building codes. In doing so, you can be sure that the work done on the property will meet all the necessary requirements.
If you’re not well-experienced in home renovations, you’ll need to hire contractors to do the work for you. This part can be a challenge in itself, as you’ll need to find reputable contractors who do quality work and stick to their timelines. More so, you have to do your due diligence in arranging payroll, which can be complex for first-time flippers.
When looking for contractors, start by asking for recommendations from friends or family. You can also check online review sites to see what others have said about contractors in your area. Once you’ve found a few potential candidates, be sure to interview them and ask for references.
You should also clearly know what you want the payment arrangement to be before you sign a contract. Many contractors will want to be paid upfront, but this isn’t always the best arrangement. Instead, you may consider paying a percentage of the total cost after completing each milestone. If you think you’ll have trouble in this area, you can get outsourced payroll services to help you manage the payments. By having a reputable company handle payroll, you can be sure that your contractors will get paid on time and that all the necessary taxes are withheld.
Flipping properties can be a great way to make money, but like most ventures, it comes with challenges. The above are some of the most common hurdles you’ll face when flipping properties, but by being prepared and knowing what to do, you can overcome them and be successful in your endeavor.