Steer Clear of These Five Property Mistakes

Property Location:

You’ve found a great deal on a house and are preparing to close, but don’t overlook the importance of the neighborhood. A less-than-ideal location can negatively impact property values and make it harder to sell, even with a great house. To avoid this, research the area using platforms like Zillow, Trulia, and PropertyShark.

When doing your due diligence, focus not only on comparable home prices but also on how long homes stay on the market. If homes take a long time to sell, your holding costs could rise. Take a walk through the neighborhood to assess the condition of the streets and nearby properties. For rehab projects, check the distance to essential services like grocery stores and look into crime rates. If you wouldn’t feel comfortable walking the area, potential buyers likely won’t either.

If the neighborhood is in the early stages of gentrification, buying low and waiting for prices to rise can be a good strategy. However, if you're aiming for a quick flip, it’s best to invest in areas with high buyer demand.

Excessively Upgrading Properties

A common mistake for fix-and-flip investors is over-improving properties with high-end upgrades that don’t align with the neighborhood or blow the budget. For instance, remodeling a large, upscale home in an area of smaller bungalows may not be a smart investment. Focus on renovations that appeal to a wide range of buyers and fit the character of the neighborhood.

Before starting a rehab, consult with local realtors to understand what upgrades buyers are seeking. The goal is to invest just enough to meet market expectations without going overboard. In neighborhoods where basic finishes are standard, buyers won’t pay a premium for custom features.

While excessive upgrades should be avoided, updating outdated systems and appliances is essential. Buyers won’t settle for old AC units or outdated appliances, so modernizing these elements can boost the property’s appeal and value.

Lastly, consider outdoor spaces. Many buyers expect a good-sized yard, so be cautious about expanding a home if the outdoor area is already small. Lack of outdoor space can deter potential buyers.

Selecting an Inexperienced Contractor

Successful rehabs start with hiring a skilled and trustworthy contractor. The right contractor helps avoid cost overruns, ensures projects stay on track, and offers valuable construction advice. The project’s scope will guide your choice—small jobs may be handled by a solo contractor, but larger renovations typically require a full crew.

To find a reliable contractor, ask for referrals from other investors and attend REIA (Real Estate Investors Association) events. Interview several candidates, check references, and visit past job sites to assess their work. Once you’ve narrowed it down, ask for detailed quotes to compare hours and costs for each stage of the rehab.

When hiring, clearly define responsibilities. While an experienced contractor will know what permits are needed, it’s ultimately the investor’s responsibility to ensure they’re obtained. Starting a rehab without the proper permits can lead to fines, lender issues, and the inability to sell the property.

Overlooking Costs

A frequent mistake made by fix-and-flip investors is underestimating costs. Always add a 15-20% contingency to your budget for unexpected expenses and remember to include homeowner’s insurance and property taxes. Insurance can be especially costly in high-risk areas, and property taxes in places such as the Greater Boston area can be significantly higher than the national average.

To avoid expensive surprises, hire a home inspector to catch potential issues like roof leaks, pest damage, or foundation problems that might not be visible at first glance. Investors should also be realistic about their skills. Often, trying to save money by handling tasks themselves leads to costly repairs down the line. When unsure, hiring a professional ensures better quality and efficiency.

Lack of an Exit Plan

Each property investment should come with a well-defined exit strategy. Savvy rehabbers always prepare a backup plan if a property doesn’t sell quickly, such as renting it out or selling it to a wholesaler. It’s important for investors to research local rental markets and have a strategy in place for attracting tenants.

By following these five straightforward tips, investors can avoid typical property missteps and improve their odds of turning a consistent profit from flips.