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If you listen to the late night infomercials, any dullard with an ounce of initiative can make a fortune flipping houses. If only it were so easy. First of all, in some areas of the country, this isn’t the best time to try house flipping, although opportunities exist in many markets. In addition, the burgeoning numbers of foreclosures and pre-foreclosures are an opportunity for the flipping investor. 

You can make a very nice income flipping, and it is a better way than most for the average Joe to retire rich. Just like every other kind of investment however, you can get snookered if you don’t know what you’re doing, or make some bad decisions. With the amount of money in play, it doesn’t take many bad decisions for you to lose your shirt. Here are some of the worst mistakes.

House Flipping Mistake #1
Choosing the wrong house – This is the big daddy mistake, the one that’ll really get you soured on the whole house flipping thing. You want a house you can turn fast, so do your due diligence. You want a property with no major (or preferably even minor) structural problems. Look at the neighborhood. Is it desirable? Is the net flow in or out? How about the schools? Is it easy access to freeways, shopping and major employment centers? That old real estate saying “location, location, location” exists for a reason.

You want a property that will appeal to the maximum number of people. The more assets it possesses, the better. Stay away from weirdness, unless it’s very easily fixed. I’ve seen some gems, like the house with the bathroom in the middle of the garage. Run like the wind from these places. You want a house that will appeal to the maximum number of people to avoid house flipping mistake #2.

House Flipping Mistake #2
Holding the property too long. The best case scenario is that you flip it before you make the first mortgage payment. Remember all the payments at the beginning of the mortgage are almost all interest. Every payment you make will affect the principal very little so it will come directly out of your profit.

For example, if you got a house for $250,000 and end up selling it for $279,000, you will gross $39,000. If that takes 27 days, you’ll make no payments and you’ll net $49,000 minus renovation and transaction costs. If you get a 3/1, interest only ARM at 6.2%, your payments will run about $1,350, depending upon your loan costs. Every one of those $1,350 mortgage payments you make comes directly out of your profit, so the best situation is not to make any. The exception to this rule is if you are able to make improvements to the property that will take longer than the time window to make the first payment, but will generate substantial appreciation, well beyond the cost of the payment. For most people, the better strategy is turn and burn, however.

House Flipping Mistake #3
A big mistake made by flipping rookies is, when making renovations, making the house you like, instead of one with the broadest appeal. This flipping faux pas will directly impact you also making mistake #2. Remember you want to appeal to the broadest possible market. The more potential buyers in the pool, the more likely one of the will purchase your property. With that in mind, remember, when you repaint, all colors should be on the conservative end of the color chart. No wacky oranges, bright yellows, or cobalt blue hues should appear on the walls. Keep with subdued, neutral colors such as off white, beige, light tan, light gray and so on.

Same with tile colors and patterns, cabinets, or any other detail that you may really, really like, but may not be appreciated by the average buyer. You’re trying to make money, not a statement. Unless you are trying to generate marketing buzz by landing on the pages of Architectural Digest, stick to the basics.

House Flipping Mistake #4
Spending too much money on renovations is a common error when flipping houses. This can be precipitated by first making mistake number 1, and selecting a home that needs major repairs. You should have found a property that needs painting, carpet, tile and cleanup. Look at everything in terms of R.O.I. Those renovation items typically have high R.O.I. If you have contractors that you can trust, and are both fast and reasonable, you may be able to make other alterations, but only if they’ll appreciably increase the selling price of the home. New light fixtures are another high R.O.I. improvement. In homes from the 50’s, 60’s and 70’s.

Great, inexpensive cosmetic upgrades are the best. These include anything that will entice the buyer out of the car and give them a favorable first impression. Examples of this include a new front door and hardware, painting the garage door, new walkways, refinishing the front porch, and interior entry treatments such as hardwood, slate and tile. Landscaping is great for this as well. Remember that cleanliness is really next to godliness in this case. The place should be clean as never before, and that should begin at the curb.

House Flipping Mistake #5
Not knowing your market. You need to know what sells. That’s the only way to know what properties to buy and what alterations will help you maximize profit. If slab granite countertops will make the home sell faster in the property’s neighborhood, you can get them installed for $2,000, and raise the price of the home by $5,000, then do it. If homes in the neighborhood all have 2 full baths or more, and you can easily turn a 1-3/4 bath house into a 2 bath house; that would probably be worth doing as well. What people look for in a property is essential knowledge.

House flipping mistake #6
Not doing what you do best and most profitably. This rule applies to all entrepreneurs, not just real estate investors. It’s very common, because people think they are saving money by doing things themselves. You need to look at the big picture however. How do you get paid? If you get paid by flipping houses, you need to spend your time doing that, not cleaning the yard, painting or replacing the carpet. These things can all be done by someone who makes far less money per hour than you do finding opportunities to flip. You should concentrate on finding your next home flipping opportunity, not saving $9.00 an hour by cleaning up the property. That’s what day laborers are for. You should spend your time finding, evaluating and closing real estate deals.

House Flipping Mistake #7
Not having a plan. Before you can do your ROI calculation you need to have a plan. What does the house absolutely need, what other improvements will you make, how long will they take, who will do the work and how much will it cost? Your flipping plan should have the answers to these questions. Remember to include items such as construction permits when calculating costs. In many cases you’ll need them even for relatively minor electrical and plumbing work. Like in many other businesses started by entrepreneurs planning is an often overlooked step in the process, but one that can help ensure success and maximize profit.

Hopefully this list of 7 home flipping mistakes can help keep you on the right real estate investing track. I hope everyone had a great Independence Day holiday. If you need a good guide to help you make a nice profit from this type of investing, check out How to Build a Fortune With Real Estate Foreclosures and Short Sales. This eBook has some very good information (especially with the growing number of foreclosure properties on the market) and is packaged with some bonuses that deal specifically with finding good investment properties, evaluate a property as a short term investment, and flipping properties correctly so you can make money. It actually covers much more than that. Check it out if you are, or want to be, involved in flipping houses.