Reasons Your Flip Flops and What to Do About It
Reasons Your Flip Flops…
The process of fixing and flipping has made a mark in property investing as an effective way to turn a profit. In theory, the concept is simple: buy a house, fix it up, and sell it for more than you spent. However, the reality is a little more complicated. A successful flip means understanding the neighborhood, choosing appropriate improvements, and keeping to a strict budget in order to maximize your returns.
If you haven’t encountered a failed flip yet, you’re clearly doing something right, but it very well may happen in the future. No property investment is a sure thing, and it doesn’t take much for a flipping effort to flop. Here are the top five reasons your home flip may fail to yield the ROI you expected – and what to do about it.
The Price Is Too High
How you price your property can have a significant impact on the outcome of a flip, and expert investors understand how delicate the balance can be: price too high and buyers won’t be interested, or price too low and watch your profits slip through your fingers. That’s why extensive due diligence and economic analysis is recommended before posting a price.
In spite of plenty of preparation, sometimes your pricing will miss the mark. When this happens, you may not see the responses you’re hoping for, resulting in a listing that sits and sits. This can cause red flags to go up, sending a message to buyers that there may be features about your property that are keeping it from selling – even if nothing is wrong. A long time on the market can lead to a downward spiral, resulting in further price drops that erode any hope of a profit.
There Aren’t Enough Improvements
A little more goes into a successful fix and flip than some new drawer pulls and a fresh coat of paint. The true excitement in a successful flip is the results you can create with a high ROI in mind – for example, the joy of kitchen cabinet upgrades that add tens of thousands to your list price.
Not all improvements hit the mark, however, and making the wrong upgrades or too few upgrades can end up costing you more than you think. When you fail to truly embrace the spirit of fixing in the fix and flip concept, your potential buyers may find your price too high, particularly if those buyers saw the home before your purchase and put two and two together. When planning your flip, make sure you’re accurately assessing all major problems and putting together a plan that elevates the resident experience.
There Are Too Many Improvements
Sometimes, it’s possible to get swept away by the possible updates in a fix and flip. Maybe the bathrooms need work, the kitchen is woefully lacking, the basement is completely unfinished, and the porch is out of date, and you’re not quite sure exactly where to focus your energy.
In a situation that calls for significant repairs, it’s tempting to sink thousands into your property in an effort to bring every single facet up to par. However, this can be a costly mistake. Spending too much on improvements that aren’t specifically warranted may move your investment past the pricing thresholds in the neighborhood, narrowing the possible pool of potential buyers. This can make your property harder to sell, and ultimately end up contributing to a failed flip.
The Listing Information Is Lacking
It may seem shallow, but a real estate listing can essentially cost you a sale. In essence, it’s the foundation of a first impression, and unattractive pictures, poor lighting, and missing information can all create an extremely unappealing image of your home. You may be convinced that buyers will love your property once they see it – but if your listing isn’t up to par, no one will waste time visiting.
After a lengthy renovation process, it may be tempting to cut corners on the listing to bolster your bottom line, but this can only hurt, not help. You want potential buyers to see images that truly display your hard work, not low-quality pictures that fail to wow.
Bad Timing for the Neighborhood
The real estate market is anything if not variable. Sometimes, your area market will be a great time to sell. Other times it won’t be. As an investor, it’s up to you to chart these ups and downs to be sure you’re making the best decision at the right time.
As all successful home flippers are aware, a house that sits for too long on the market is a house that likely won’t sell for what it’s worth. While some houses do sit for a long time for valid reasons – major problems like foundation issues, for example – others sit too long because the timing is just wrong. Unfortunately, no matter the cause, the effects are often the same.
Instead of attempting to make headway in a tough market, consider turning your investment into a rental property until the economy turns around.
… And What To Do About It
You purchased a property, poured money into fixing it up, did good work both inside and out, relisted your property in hopes of a big reward – but to no avail. Now what? There are several steps you can take to right the ship and get your investment back on track.
Upgrade the Lighting
If you don’t normally swap out bulbs and fixtures in your fix and flips, it may be time to start. Lighting comes in numerous different forms, and what’s cheap usually isn’t always the most flattering. Many bulbs that are designed to be energy efficient, for example, show a harsher, brighter light that can dampen the effects of both your stylistic choices and the appearance of people inside the home.
When choosing lighting for a flip project, focus on options that improve the environment of your property. This can create a more inviting atmosphere for potential buyers, helping them to feel at home.
Lighting choice can make a difference in the images you display of your property, as well. The lighting you choose in your shots can either embellish the features of your home or shroud them in shadows, so consider working with a professional for best results.
Add Architectural Details
The rise in prefab homes is a benefit to homeowners, providing an affordable and easy way to purchase a nice, new home. Unfortunately, many of these kinds of new builds can mean a lot of houses that look exactly the same. Further, many neighborhoods are still dominated by homes from the 1960s and 70s that are less than aesthetically pleasing.
Many buyers still want features that stand out, and a home that’s just one of a crowd can’t do this effectively. In order to draw attention, consider embellishing the architectural aspects of your property. This can be simple, like updating the front door to something more eye-catching or modern, or a little more in-depth, like crown molding throughout the home. There’s no limit to how you choose to proceed here; any upgrades that create a pleasing aesthetic can help your home stand apart.
Improve Curb Appeal
When potential buyers drive past your property, what do they see? A beautiful yard? Gorgeous flowers? Shrubbery that impresses? Or a patch of dry, dull grass that isn’t sending any kind of positive message? If it’s the latter, it may be time for you to step up.
Landscaping, regardless of how superficial it may be, is an important part of creating an aesthetic that attracts buyers. When all you have to show is a little grass, you’re not doing enough to differentiate yourself from the rest of the homes in your area. Improved curb appeal, like flowers, new paint, healthy grass, or a front gate, can all create a homey, welcoming vibe, telling potential buyers that, yes, your property is well worth a look.
Invest in the Kitchen
Unfortunately, fixing a failing flip may mean spending a little more on your property. When you have to upgrade your investment, the best place to do so is in the kitchen.
For many home buyers, the kitchen is a deal breaker. A kitchen with old appliances, outdated countertops, or inadequate space is a turn-off to almost every buyer, creating a logistical issue that may be practically impossible to move past. A few quick upgrades, however, can create a significant difference.
Your kitchen investments don’t have to be major; a few minor touch-ups can be enough to draw interest. A new countertop, updated flooring, a refurbished backsplash, or a few new – or gently used – appliances can transform the entire room. You don’t necessarily need to sell a brand-new kitchen to turn heads; instead, you need to sell the idea of what could be, planting the seeds in a buyer’s imagination.
Making a Failing Flip Work
Flips that don’t work out are just a part of the investment process. Whether you priced too high, created a lackluster listing, or went a little overboard on your upgrades, there are plenty of contributing factors that can make it unlikely you’ll see a high ROI.
However, it’s important to remember that a flip that isn’t working out can still be turned around. With a few simple steps, it’s possible to mitigate your losses, giving you the best chances at recouping your investment – or perhaps even turning a profit.
Scott Clift is a licensed real estate broker with Westpark Loans. He has been in the real estate industry since 1994. His team of seasoned professionals specialize in providing real estate loans for investors and other self-employed individuals. When you are ready to invest in real estate, call Westpark Loans to secure your financing at (844) 574 LOAN or by visiting westparkloans.com.