House Flipping Mistakes To Avoid In 2023

If you're considering flipping a house for the first time, it's essential to be aware of the pitfalls. House flipping can be a great way to make money, but it's not without risk. With any home flipping project, things can quickly go wrong, especially as we head into a down market. Hi, I'm Joe Homs, and I have over 40 years of experience as a broker, mentor, and investor, and I want you to subscribe so that you never miss a video. Okay, let me tell you about a bad story That I had flipping in a down market basically like this one. It was exactly the same. And it was about 20 years or so ago. And I was flipping a house with a business partner and he was a cabinetmaker by trade. And he decided he wanted to do all the kitchen cabinets. And this was probably one of the first ones that we did together. And we, you know, he mostly ran into the problem that most first-time flippers have, and they want to make the house look like something that they would live in. And so that's the problem we had. And it was a hard money situation, and we had purchased the property with the hard money. I was in there rehabbing it. And my business partner said he was going to do the cabinets. Unfortunately, it took him 6 months to do the cabinets in the kitchen, which is obviously way too long. You don't want to really be in a project for more than 2 or 3 months, but this was 6 months. This is a good, you know, friend of mine, a business partner, so I kind of let him have a little bit more rope than I probably should have. So we were at the top of the market, and of course We're up here and it starts going down. And we're done with the project. We put it on the market, but it is going down just exactly like is happening right now. We put it at the price that we both think it should be, more him thinking than me. And that's another mistake that I made and I don't ever make in the future again. But We listed it for a price and we weren't getting any showings. Finally, I convinced them we need to lower the price. We start to get showings, but we're literally what I call chasing the market down. So we're up here at $600,000, $575,000, $550,000, $525,000. We're going down, we're just chasing the market. And I said, we've been in this project for like 8 or 9 months now. We're going to lose our shirt at the end of the day. I decided to drop the price to a level where I knew we could sell it right away. And we did. I ended up, we both ended up losing about $80,000 on that deal, which is the only real estate deal that I've ever lost money on. But again, you know, things like that you learn. And what I learned from that deal is I'm the basically expert in this team. And so I need to decide on pricing. I need to decide on the design. I basically, I need to make all decisions. And that's what I do now when I teach others. I give them enough room to grow and to learn, but at the end of the day, if the prices need to go down to a certain level to get rid of this property, that's my decision. That's what we do at the end of the day. So bad example, I guess, but it's an example. That you can learn from. And so be prepared for whatever market you're in. If you're a flipper, you don't want to go to Plan B because I hear Plan B all the time. Well, Joe, if I can't sell it, then I'll just get it back and I'll just rent it, put it out there. Honestly, you don't want to do that in a down market. You could be at $500,000, put it back on, for lease and lease it out. And then by the time you're done, like if we were in 2008 and I purchased, you know, that property, let's say for $500,000, and now in 2008 it's only worth $250,000, that's probably not a good buy because it took another 10 years for it to get back up to $500,000. So I'd rather lose the money at that, at that point in time and then make it up at some other point in time with something else, which is what we did. So I took those losses and I, you know, paired them with the gains, and so we ended up making that year not much money. So that, that's, that's how I handled that situation. Hope you're getting value out of these videos. All I ask in return is that you hit that like button. If you're new here, here are 4 mistakes that you can avoid to be successful in 2023. 1, buying too high. Don't let somebody talk you into buying this property because they convince you that this is going to be the best thing since sliced bread. It's not. Do your numbers. In this market, we were buying at 70% of the after-repair value. We're down to 60%, and right now We didn't buy anything in December. If it's not, if it's not a killer deal, we're staying away from it. Number 2, not having a plan. That's probably the most important thing is have a plan. How much you're going to pay for the house? Do you have your contractor in place? Are they able to rehab this place in less than 2 months, 3 months at the most, depending on the size? If it's a condo, you should be in and out in a month. Giving it to a real estate agent unless you're an agent yourself and selling at the end of the day. Making sure you price it correctly, making sure you keep on top of the pricing. If you're not getting showings, and I tell all my clients, if you're not getting at least 5 showings a week, you're too high on your price. It's time to start dropping it. So make a plan. And stick to it. Number 3, neglecting to inspect thoroughly. And I've been doing this for over 40 years, so I do all my personal inspection. But if you're not and you're inexperienced and you're just starting out, it's not that expensive to hire a home inspection company, $400 or $500 to do that inspection for you so that you know what you're getting into. You can sleep well at night, Knowing that there's not any major issues that are going to pop up. Okay, major issues— foundation issues, roof issues. I'm talking major issues. If you've been to the property and you've looked and you've walked around the property, you should be able to say, okay, this is good. However, you're not, you know, you're not Superman. You don't have x-ray vision. You can't see behind a wall. Somebody opens up that wall for whatever reason because there's a leak behind there, then fine. That's going to be necessarily— has to be fixed, so you fix it. Okay, I can tell you that every project has issues that come up. I'm talking about major issues, so be prepared for those. Number 4, pricing it too high. I buy a place, I do my pricing after repair value. This is what this house is worth. On the day I buy it. Okay. Or that I think it's going to be worth on the day I buy it. 2, 3 months later, maybe it takes a little bit longer. When I'm ready to sell it, I'm going to do the same thing. I'm going to do my comparables to find out what that house price is worth at that point in time. And in this down market, it's probably going to be worth less. Hopefully you've accounted for that. in the original purchase price. Okay, so price the home. I usually like to price the home a little bit below whatever competition I have in the neighborhood because mine's totally rehabbed, mine's going to look the best. I want them to come over to my house and look at that first and not look at anything else so that they can buy my house. If it's sitting there and if it's not getting 5 or more showings a week, you're still too high and you need to be disciplined enough to start lowering that price to get it sold. It's easier said than done. Of course, many experienced flippers have it down to a science and can replicate their success over and over again. The thing is, they have made mistakes in the past and learned from them. This is how they have a system that consistently works. If you want to learn more about flipping, click on this playlist right here. I've done a ton of videos of dos and don'ts to get you the most profit on your next flip. Or reach out to me anytime. I'm always here to help. Give me one.