Flipping is Easy Money, Right?

Money PitAnyone that has been a real estate investor as long as I have has been through some of the nightmare issues that can plague landlords. We’ve all heard those flipping properties horror stories. The ones about the midnight-move tenants, the renovations that ate your entire profit and then some, and my personal horror story – one of my properties developed into a grow-op. That drug growing nightmare house cost me about $60K! In my 20 plus years in the real estate industry, I have learned many valuable lessons along the way and have put some protection in place to minimize some of the risks. Property flipping shows are pretty popular on TV now. They make it look so easy, don’t they? Just buy a house under market value, throw a few renovations into it and flip it for a quick 6-figure profit. Easy, right? Wrong! Nothing could be further from the truth.

Here are 5 ways to avoid flipping properties nightmares:

  1. Check on your property often. Do not rely on your tenants or contractors to provide information for you. If your property is in another city, get someone else to check on it in person. You may have a property manager do this, but I also recommend having an independent third party check every now and then. It keeps everyone honest.
  2. Get independent information. Do not rely on the listing realtor for this information. They have their client’s interests to protect, not yours. Verify everything from comparable listings to school ratings to crime statistics for the neighborhood.
  3. Get renovation cost estimates before purchasing. Although this sounds like a no-brainer, people often seriously miscalculate how much renovations are going to cost, and also add in a buffer for unforeseen surprises that may happen during renovations PLUS carrying costs.
  4. Do not “over-renovate”. You do not want to put in granite counter tops and Brazilian hardwood floors into a working-class rental neighborhood. You will spend way more than you need to and will likely not recover those costs.
  5. Get an inspection. You would be surprised at how often people do not get an inspection, or they have one done from someone who is not a qualified inspector.

Sleep Better at Night

The above suggestions are by no means an exhaustive list. In my opinion, you can never do too much due diligence. Just when you think you’ve done enough, do more. I see mistakes that new and seasoned investors make when flipping properties all the time that could have been avoided by doing some research and homework. I would love to hear some of your renovations nightmares. Leave your comments below and what you would change if you did the same deal again. **UPDATE** I’m off to NYC on this week to film a pilot for a TV series called “Landlord Rehab.”  If any of my real estate investor friends have any interesting stories, anecdotes, and experiences that they want to share with the world, this show is about the mistakes that investors make and how to avoid them. I think it will be an interesting contrast to the existing realty TV shows surrounding real estate investing that show people making hundreds of thousands of dollars by splashing some paint on a house.

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