Three Strategies to Reduce Your Financial Risk When Flipping Houses
By Tarek El Moussa
If you’ve watched Flip or Flop, you know that Christina and I have faced almost every challenge imaginable. We’ve been through so much and still managed to make profits on most of our sales, so we’ve built a series of real estate education seminars to share our experiences and expertise. Our students ask us all the time about flipping mistakes and how to avoid them, so let’s talk about spotting a bad deal and knowing when you should say, “Yes, let’s flip this house!” and when you should walk away.
A lot of first-time real estate investors have trouble identifying deal breakers, even when they’re right in front of their faces. This is strictly a case of lack of experience, and with a little bit of education, you can learn to spot them before you make an offer.
High-Crime Areas
Bad things can happen in any neighborhood. Recently, I threw our car keys in Christina’s purse, and she left it on the porch of one of our flips while we talked about the color of the paint. Before long, we heard our SUV start up, and this guy was driving away with our car in broad daylight.
We were glad that didn’t happen in front of any buyers, but it reminded us that even low-crime areas can sometimes be dangerous. That’s why it’s really important to avoid known high-crime areas. If your buyers don’t feel safe leaving their cars parked in front of the house, they’re not likely to want to buy it.
Houses Built Before 1978
This isn’t a definite deal breaker, but you have to be a special kind of house flipper to deal with older houses. They were built to meet different (much looser) codes back then, and they usually take a lot of work just to get them sellable, let alone up to date.
I love big projects and, most of the time, the worse a house looks, the better the deal is for Christina and me. That said, too much is too much, and you can lose a lot of money on older houses. Remember how risky that 1920s Spanish-style house was when we flipped it in season one of our show? And we ran into similar problems when we went into business with our friend Jessie on an old bungalow-style house.
As we found out when we worked with Jessie, old houses often need to be seen as restorations instead of rehabs. If you’re not really confident and you don’t have a lot of experience with real estate and flipping, walk away from old houses.
Railroad Tracks, Highways, and Airports
When you visit the property, what do you hear? No one wants to live right next to a highway, active railroad tracks, or an airport. If there’s a lot of noise pollution nearby, you could be looking at a really bad deal. Look at what the comps sell for in the area and find out how long they take to sell, too. If your house has good insulation and double-paned windows, this might not be a problem, but it can be a huge deal breaker for a lot of buyers.
Non-Permitted Additions and Structures
A non-permitted addition to the house or structure on the property can be bad news for you. These either have to be permitted or demolished before you can sell the property. Permitting can take months, and demolition can be expensive.
Don’t Fall in Love!
We’ll end your real estate education for the day with this: don’t fall in love with a property before you make an offer. If you’re so intent on flipping this house that you overbid, you can ruin your chances of making any profit when you sell. For more tips and information on flipping mistakes and secrets to making it work, watch our show and check out one of our Success Path Education seminars near you.
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