House Flipping Flops: What can go wrong and how to avoid the pitfalls

You hear about celebrities and, maybe even your friends, flipping houses for a huge profit and you want IN. Buyer beware – there’s not always a pot of gold waiting for you at the end of the flipping rainbow. People make mistakes, forget about certain costs, don’t budget properly and end up losing money.

We were curious to uncover the trends behind flipping failures. We looked at the same homes bought and sold between 90-365 days, and then went hunting for flops, and boy, did we find some all over the country. Here’s our list of flipping DON’TS.

  1. DON’T flip a house that is an HOA. A few examples we uncovered include one from Carefree, Arizona (Maripola County) and another from North Palm Beach, Florida (Palm Beach County). Both of these homes had HOA fees ranging from a few $100 to $1,600 a month. If you want to flip a house, we advise staying away from any buyer obstacles like HOAs. See our related story about people specifically looking for “no HOAs” while searching for homes.
  2. DON’T spend money renovating a Mother-in-Law suite, or something else just as unique. If you are going to spend your money on updating this feature, you may not see a return on your investment. Stay away from niche updates.
  3. DON’T try to sell your flip with a renter attached to it. Once again, you don’t want to create any obstacles for potential homebuyers. Being a landlord is not everyone’s dream. One house in Bunn, North Carolina did just that and lost a cool $250,000.
  4. DON’T put most of your renovation budget into outside areas like a pool and hot tub. You are limiting your market of potential buyers since not everyone wants a pool (i.e. families with small children). You want to cast the widest net as possible and appeal to the most potential buyers.
  5. DON’T buy a house with an awkward layout if you aren’t going to fix it. Renovating the roof, adding a fresh coat of paint, adding new appliances and bathroom fixtures are definitely all good updates. But if the rooms are awkward and you don’t change the layout, you may not recoup your investment. Our advice, if you get a good deal on a home with an awkward floor plan, only buy it if you plan on renovating the flow of the house (i.e. to an open floor plan). Talk to an architect and crunch your numbers with that in mind before you buy.
  6. DON’T over-renovate and over-spend for the neighborhood. We found many flip failures that were the most expensive houses on the block. For example, a house in Pawlings Island, SC was purchased at $2.3 million ($538/square feet), it was then renovated and subsequently sold for $1.9 million ($464/square feet). At $1.9 million, they are the most expensive house in the neighborhood. We found similar stories all over the country. Another home in Cape Coral, Florida was purchased at $1.2 million, sold at $950,000 and is the most expensive house in the neighborhood.

Bottom Line

All in all, flipping can be profitable if done right, and quickly. Remember, look at neighborhood comps, stay away from any potential buyer obstacles, don’t put your money into renovating something that will only appeal to a subset of homebuyers, and put together your budget. If it all makes sense, start searching for fixer-uppers today!

See our House Flipping 101 article for more flipping insights.

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