Top Three Reasons a Flip Ends in a Flop

When a house flipping project flops, investors and flippers are left scratching their heads. The setback can be devastating for some, leaving them without capital for another project or damaging their reputation in the industry. Fortunately, flops can be avoided in many cases. Understanding why house flipping projects flop can help you prepare for challenges along the way, properly estimate costs, and ensure your flip is a success. Keep reading to learn the top three reasons why a flip ends in a flop.

 

1. ARV (after repair value) is overblown

Calculating the after repair value is crucial for determining your potential profit for a project. Too often, people are blinded by profit and overestimate the ARV for their project. Working with an overblown ARV from the beginning can extend your budget too far, making it impossible to recoup costs in a sale.

 

There are several factors that can contribute to an overblow ARV. If flippers are sold by an agent on the potential of a property, they can get swept away with unrealistic expectations for the ARV. This issue also occurs when house flippers ignore comps, working on their own instincts or wishes to evaluate and price a property. The ARV can be overestimated if expert advice is not sought during the process or if flippers think they know more than they actually do.

 

You can prevent falling into this trap by removing arrogance from the process, doing your due diligence with research, and utilizing profit calculators.

 

2. Rehab wasn’t properly priced in advance

Inaccurately estimating the rehab costs for a house flipping project can also cause it to end in a flop. If you do not manage your budget and timeline, you can quickly blow past your estimated costs for repairs and rehab on the property. In some cases, a contractor can give a low bid to win a job. Once they get started, the creep is not managed. The budget gets out of hand and the timeline goes beyond what was originally estimated.

 

Other common issues with rehab pricing includes missed items on the inspection, unexpected city or state permits, and rehab that takes longer than expected. These issues can result in holding costs or the rehab budget going up unexpectedly. In worst case scenarios, you may have a contractor quit and have to find someone new in the middle of a project.

 

3. Market changes during the project

If the national housing market goes down during a house flipping project, you may end up with a flop. Local area changes can also impact the outcome of a project. Even a six-month period can change interest rates and cause a shift from a buyer to seller’s market. A change in season can pause the market, leaving you stuck.

 

It is crucial to monitor the market throughout a project, so you can anticipate issues and respond quickly. Planning every detail for your flip is not enough because a change in market conditions can throw all of your assumptions and plans out the door. If your expectations and plans become invalid, you have to shift your focus to salvage the flip.

 

Win Every House Flip with Wealth 212

Whether you are just starting out in house flipping or you’ve done it for years, there is always a fear of flopping. When a project flops, you can be left without capital for a new project or potential investors. Your reputation is on the line with every flip, and you want to ensure success as much as possible. Joining the Wealth 212 network can help set you up for success with the funding, resources, and advice you need to win every flipping project.