We’ve worked with hundreds of real estate investors delivering over $150,000,000 in real estate loans. Over the years, we’ve seen many new Real Estate flippers fall victim to the false expectations that HGTV creates. We’ve identified the four main HGTV discrepancies you should avoid as a real estate investor.
1. Don’t Buy Homes Sight Unseen
You see it all the time on HGTV, real estate flippers purchase homes they’ve never been to before. We do not recommend this for a multitude of important reasons.
Older homes like the ones you find in New Jersey or Philadelphia for example tend to be wrought with invisible problems. You could have knob-and-tube wiring, previous updates that are out of code, or a lack of modern safety features, hazardous materials, energy efficiency issues, leaking roofs, etc.
Instead, acquire access to the home by coordinating with the lister or seller. These homes tend to be off-market sales and should be handled with great detail and diligence right from the start. Bring your contractor and start with a complete walk-through of the property and home.
It’s critical that you have an expert GC with you who has experience with older homes. In fact, a lender who can provide you with an in-house construction team is a major asset. Take a lot of the construction risk out of your flip by having a professional properly quote you a renovation budget before you get your project funded.
On HGTV, many flippers end up in need of more rehab money. Restructuring a loan to add Rehab Funds is actually pretty difficult and expensive. It is much better to build in extras and reserves upfront rather than try to change after the purchase because you or your GC didn’t identify structural issues, plumbing/electrical issues, load-bearing walls, etc before you began working.
2. Extravagant & Specific Design
Although bright walls, bold finishes, and living room waterfalls look great on TV, they don’t always translate to the average buyer. Avoid extravagant designs, bold colors, and super high-end materials. It’s not about your taste, it’s about capturing the interest of the most potential buyers as possible. Keep your design aesthetic vanilla to expand your buyer base. Choose classic, timeless designs, and neutral colors like light grey or khaki walls, white cabinets, and light flooring.
3. Don’t Do it All Yourself!
Becoming a general contractor, managing all the sub-contractors, timelines, communication, budget, permits, purchase orders, etc can be a nightmare. Although you can save on the overall cost upfront, the additional time required and potential increases in costs due to conflicts with scheduling. Materials, etc, can actually cost more in the long run. Instead, hire a GC who is trained to negotiate timelines, understand what’s needed and what’s been missed, and who can professionally advise you on your decision-making process. That includes the demo. Don’t do your own demolition! Demo teams are trained to be fast and clean, they can handle water and moisture, old electrical, hazardous materials, and more. Investors showing up with sledgehammers like on HGTV is not realistic.
You may think that avoiding the cost of paying a GC protects your budget but, in most cases, it doesn’t. Having a trusted team you can count on will guarantee you to save time and money project after project.
4. Don’t Assume You Can Outsell the Market
It’s common on HGTV to watch investors pour hundreds of thousands of extra dollars into their flips despite neighboring comps that indicate their property isn’t worth that amount. It appears to be normal that these expert flippers can outsell the market they’re in, but that is typically not the industry standard.
Check for comps throughout your flip and use it as a guideline for how much money to put into your property. Take careful notice of the level of finishes used in those comps as they are showing you what the market wants for your price range. Remember to find and use cost-effective materials that your buyer is looking for. A $200,000 home doesn’t require quartz countertops, but a less expensive durable material like porcelain can be a much more fitting choice. The odds are you won’t sell for double the prevailing market so be smart, check the numbers, and stay realistic.
Let our team at Builders Trust Capital help you avoid rookie mistakes that cost you time and money as you get started in real estate investing. Our loan programs are customized to your specific needs focusing on speed, flexibility, and customer satisfaction. Give us a call at 856-422-3232 and let’s get started working together.