Flipping is at an all-time high. But the ROI on fix-and-flip investments is declining. Total deal volume hit a record 12-year high of $6.4 billion in Q1 2019, while ROI landed at an almost eight-year low.
Flipping is both an art and a science that requires accurate data and experience. The glamour and drama of TV shows about flipping is not truly the reality. According to real estate investor and writer Ethan Roberts on Auction.com, "The problem with many of these shows is that while they may accurately show the problems the flippers encountered during rehabbing, they leave out important financial aspects of the sale that affect the bottom line — all in an effort to juice the ratings."
So, what are those common errors that cut into the bottom line?
- Not having a clear sense of the buyer before you invest. Flipper and real estate broker Kathleen Benton, who specializing in flipping homes as vacation properties, says, "Before you buy a property for flipping, you need to ask yourself, 'Who will ultimately want this place?' Like all good marketing, you need to know your customer — intimately and immediately."
- Doing incomplete research on the area and properties. Successful flippers use the full range of available technology to analyze the properties that they're considering. Investing in a platform that gives you deep and broad information —including history, comps, and trends — is essential.
- Limiting yourself to your own backyard. Seti Gershberg, a real estate investor, says, "My company has found some great opportunities in areas we might not have originally considered." But if you are going to embark on a major remodeling project, you need to have trusted resources in that geography to keep on top of progress and costs.
- Underestimating remodeling costs and time required for work. Surprises are plentiful during the process. Be realistic about every project. Use a calculator like this one from PropStream to estimate your rehab costs before you commit.
- Falling in love with your "baby." This is especially common among first-time and novice flippers. At the end of the day, flipping is about resale. Although some investors choose to live in a home prior to selling it, don't lose sight of the fact that you'll ultimately be turning the property over to someone else. Make decisions that make the property saleable and avoid spending more than you need to or adding stylized options that may not appeal to the market you're trying to reach (see #1).
- Moving too slowly. Although factors like weather, permitting, and remodeling glitches are beyond your control, you know that they'll get in the way. Be prepared to respond quickly and rationally to delays as they occur. Every day has an impact on ROI.
- Ignoring the facts. The upside of the right real estate technology is that you can benefit from up-to-the-minute data about neighborhoods, specific properties, and other critical details. Study up before you put that first dollar down, and utilize the information at your fingertips. If you're a novice, speak to other people with experience — and listen to their advice.