Three Signs a Flip Deal Is About to Go Terribly Wrong

Tarek El MoussaBlog, Budgeting, Flipping Houses, Real Estate Business, Real Estate Investing0 Comments

Asian female engineer thumbs down with blueprints

If you’ve watched our show, you know that I can be a little bit…let’s say…optimistic when it comes to rehab budgets. I’ve learned a lot about looking for hidden expenses, though, and they’ve definitely saved me and Christina a lot of money and headaches over the past couple of years. In fact, we were just talking the other day about some of our first deals on flip houses in our real estate business and the ones we would do differently if we could go back in time.

As we were talking, I started to think about the telltale signs that I’ve learned to pick up on that say, “This deal is about to go wrong. Get out while you still can!” I definitely would have loved to have been aware of these signs when we first started flipping houses.

You Don’t Have an Exit Strategy

At the end of most episodes of Flip or Flop, I’ll give an overview of the bids we got on the house, what we paid in closing costs, and the profits we got from the project. On some of them, though, you’ll hear a little bit different voice over when I have to admit that the house is still sitting on the market and that we’re anxiously waiting for it to sell.

When we’ve put everything into the project that we can and it’s still not selling, it can be a little bit scary, but – whether you see it on our show or not – we always have an exit strategy to cut our losses, make as much profit as we can, and move on to a better investment. Some of the most common exit strategies include wholesaling, hiring a property management company and renting the property out, or entering a lease-to-own agreement with a buyer.

You Figured out Your ARV with a Search Engine

When you’re trying to figure out if you’re looking at a good deal or a bad one, you need to know two things: what you’re going to pay for the property and its after-repair value (ARV). To save time and make a deal fast, a lot of newbie investors will try to figure out their properties’ ARVs with a Google search.

Google can give you a good idea of the property values in the area, but it can’t tell you much more than that. To find out if you’re getting into a good or a bad deal, you need to know how long houses are staying on the market before they sell, and you need to know as much about comparable properties (comps) as possible. How big are those other houses? What kinds of upgrades do they have? Are they closer to or farther from schools and other amenities?

That’s a lot of googling, and most new investors don’t do their due diligence. If you don’t have a lot of experience with real estate and/or with your market, get a good agent on your side to help you find the best deals.

You’re Putting Every Last Penny into It

This is a big one. You’ve heard the old saying, “Don’t bet what you can’t afford to lose,” right? Well, Christina and I have made this mistake, and our fans saw how scary it was when we put our whole life savings into a single flip that didn’t sell for a long time.

As you start to flip houses and get more and more into the real estate business, keep these warning signs in mind and avoid them. If you do, you’ll be ahead of the game, and you’ll avoid a lot of really scary financial situations while you make money flipping houses.

Leave a Reply

Your email address will not be published. Required fields are marked *