Most Common Mistakes? - First Time Flippers

[Calvin Strain]

In your experience what are the most common mistakes that first time flippers make? If you are a flipper, did you have any big hiccups yourself on your first (or first few) flips?

[Ritch Bonisa]

Oh, there are many.  I think the biggest is to make sure you clearly understand what the construction costs will be for the rehab - BEFORE  you acquire the property.  Many GCs will give you a low ball estimate and then will throw a lot of changes at you during the rehab.  Understanding realistic numbers and how contractors often think is a big deal in flipping.  

You have to have people you trust.  Contracts are important.  The distribution of funds and inspecting the project is a big thing.  You don't want to cut loose a big part of the funds and then have the contractor run off with the money - this has happened to most investors at one time or another.  You also don't want funding to stop or slow down during a project, so you need to make sure your funding is together up front.  Contractors who don't get paid, stop showing up, take on other jobs or disappear. Just like you and I - if we aren't getting paid we find something else to do and we lose focus on whatever it was that wasn't paying us.  It's actually a very common issue and it is mostly one of those self-imposed pains.  

Don't fall in love with the project.  We've all done it.  When you over think the rehab - you slow the process down and make it more complicated - this just drags it all out.  When a rehab is dragged out - it doesn't get cheaper - it gets more expensive. 

Make a plan up front and stick to it.  Whenever you deviate - you lose money. 

The last thing (I touched on this in the beginning).  When you evaluate a property at the beginning of the process, you have to understand what it will cost to rehab it.  It is always OK to pass on a deal.  What you can't do is buy a bad deal and then expect to make the rehab fit to make money on it.  The property has to fit the rehab to make the deal.  In other words, BUY your deal up front, don't try to squeeze the rehab or the contractor. 

If you have any questions or disagreement on any of this, let me know.  I've almost made a science out of understanding some of the things I mentioned, but I am always happy to hear another perspective and possibly learn something new. 

Hopefully someone will jump on here and discuss the financing aspects for you.