People often ask, after investing in real estate for over 12 years and flipping nearly 700 properties, about the critical mistakes that one should avoid to keep making big profits. To help you out with this, experts just came up with a few vital mistakes that killed real estate profits.
When you step into a new investment property. For instance, you got your offer accepted, so you have over 2-3 weeks to close on the property to buy it whether you buy it with hard cash or through some investor whatever sort of financing you choose to go for. You have three weeks to do plan properly. Make sure you are getting your dumpsters ordered so that they are delivered on day one. Also ensure that you’ve been able to review with your contractor multiple times like budget, schedule and the scope of work.
It’s all because every single day that you own that property, it costs you money, property taxes utilities maybe financing costs with your lender. So make sure that several times before closing, you and your contractor are on the same page.
Missing the After Repaired Value
In off plan properties, there’s times when the house on the street will be listed for 150 and another house in the same street we listen for 190. What’s the difference between these 2? The difference, if the two homes are very similar is the fixtures, finishes and the extras. Just like; does one home have a three-car garage instead of the two? Does it have a larger backyard? Does it have a finished basement, extra bathroom or more open floor plan? So on and so forth. Those little details make a lot of sense. So the second major mistake is missing the after repaired value.
How can you make sure that you hit the after repaired value? Just ensure that you do your value. Ask the real estate agent who’s going to list your property what did they think the list value is going to be. Find the appraisal done by a licensed appraiser to make sure that you get that value. You can also visit open houses and other houses in the area to make sure that your home is going to have as good or better finishes then the subject you are comparing to.
Under Budgeting the Repairs
Whether you’re doing a light rehab or full rehab. Just make sure that you understand exactly what’s going in there. It will ensure that there’s not last minute changes that they’re not under budgeting the repairs because every digit you go over budget is the one that’s less profit for you.
Additional Costs are Changes to the Budget
After being in the house and after starting the work, don’t come up with additional stuff like we thought we would if we open up this kitchen or what if we remove this wall. Every time there’s an add-on, you’re adding to your budget, and they’re reducing your profit.
Many investors think what if I buy it and rehab it for $300,000. And I sell it for $400,000 and I would simply get 100,000 dollars of profit. So what about the financing cost then. Are you paying interest to a private lender? What is your cash on cash return? So again, most budgets a lot of people don’t factor in the interest costs. Every single day, it’s costing you money. So make sure you factor in your financing costs.
This is another thing that kills real estate profits that’s known as holding cost. These are things like property taxes, utilities, water, sewer and electric gas etc. What about insurance? Are you paying for builders or risk insurance? Those policies are very expensive, that can cost you over $2000 or more for a builder’s risk policy. So just make sure you factor that in for your holding costs.
There are a few mistakes that real estate investors shouldn’t make. Just check out the article now.