House flipping has become the day trading of the first decades of the 2000s. But in the rush to make a profit, far too many would-be real estate moguls overlook the basics and end up failing. In this article, we’ll look at the five biggest mistakes investors make in this market and how to avoid them.
1. Not Enough Money
Dabbling in real estate is an expensive proposition. The first expense is the property acquisition cost. While low/no money down financing claims abound, finding these deals from a legitimate vendor is easier said than done. Also, if you’re financing the acquisition, that means you’re paying interest. Although the interest on borrowed money is tax-deductible, it is not a 100% deduction. Every dollar spent on interest adds to the amount you will need to earn on the sale just to break even. Research your financing options extensively to determine which mortgage type best suits your needs and find a lender that offers low interest rates. An easy way to research a prospective property’s total cost is by using a mortgage calculator. This tool will also allow you to compare the interest rates offered by various lenders.
2. Not Enough Time
Renovating and flipping houses is a time-consuming business venture. It can take months to find and buy the right property. Once you own the house, you’ll need to invest time to fix it up. Before you can sell it, you’ll need to schedule inspections to make sure the property complies with applicable building codes. If it doesn’t, you need to spend more time and money to bring it up to par. Next, you’ll need to invest time to sell the property. If you show it to prospective buyers yourself, you’ll spend plenty of time commuting to and from the property and meeting with potential buyers.
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