The Top 5 Ways I See New Investors Lose Money On Their First Flip or BRRRR

[Jonathan Greene]

Flipping or renovating as part of the BRRRR strategy is much harder than people think. There are so many posts every day about being stuck mid-renovation, out of money, or at a standstill because of decisions made that could have been avoided. Here are the top 5 mistakes I see by new renovators, but would love to get more added to the list as we go:

1. Paying a contractor in full before they start the job. Don't do this. For smaller jobs, half makes sense. For larger jobs, in quarterly draws. But I never understand why someone hands over 10k before a job even starts. They do it because the contractor asks and they don't know that it's not regular. It's like accepting a full year or rent in advance as a landlord. You aren't getting the tenant out no matter what. Once you have paid the contractor, that does not incentivize them to complete the job quickly. They have all of their money.

2. Doing DIY on plumbing, electrical, or structural. Welcome to the world of re-opening the walls to show your plumbing and electric work. If you aren't a licensed contractor, plumber, or electrician, you should not be touching those things, much less doing repairs or upgrades on those items. If you want to lay some tile, give it a try, but keep your hands out these areas.

3. Not getting permits for something because you probably won't get caught. I know they told you that you can sneak in a basement bathroom, but you can't. Even if they don't catch you now, they will catch you later when you try to sell a 2.5 bath that is only a 1.5 bath and the lower bath needs to be removed and capped. Get too many permits, not too few. If you get a red card, you can not proceed. If you have unpermitted renovations and have it under contract to a buyer, they are going to drop the deal.

4. Not going by to do progress checks as often as possible (or sending someone you trust to do it). You can not just trust a crew to show up every day and do your job on time. That's actually a comedy routine to an experience investor. You have to have eyes on your project every day to stay up-to-date and worst case, weekly. If you are out-of-state, your contractor is not your eyes, you need a local unbiased friend.

5. Underestimating repair costs and overestimating ARV (this is really just what most people call wholesaling). This is where it all goes wrong. It's about how you are getting your information and who you trust. Of course, you can't know repair costs right away on your first flip, but you should have more than no knowledge. You need to know other investors so you can ask them what everything costs, not contractors. They have a stake in the outcome of your job.

@Bruce Woodruff, I want your extras added to this list first please.

Anyone else have some good ones to add so we can help those who are in the middle of their first reno from losing more money?