Real Estate Successes and Failures Almost Every Investor Goes Through
From the HGTV Stars of Flip or Flop
Whenever I talk to new real estate investors, I’m always reminded of what it was like when Tarek and I first got started. Unlike a lot of our students, we were already intimately familiar with the world of real estate. However, we really didn’t know much about real estate investing and how to flip houses to make money. We just knew that we needed to find a great way to create a future for our family that would let us spend time together raising our kids.
I was talking with some young investors the other day, and one of them asked me how to get over the fear of failure and just take the plunge into the real estate investing business. For me the key is to understand where you’re almost guaranteed to fail, what will happen when you do, and what you can look forward to afterward if you stick to it.
That’s why I decided to put together a quick list of some of the most common failures that every real estate investor has along the way, followed by the successes you’ll see when you get through them, and how those successes make it all worthwhile.
1) Underestimating Your Rehab Budget
Tarek was especially guilty of this in our early years of house flipping. He’d take one look at a property, say, “It’s just going to need about $10,000 of work, and it’ll be perfect,” and we’d buy the house. Then we’d find out that our rehabs were going to cost us more like $30,000, and we’d have to do some really creative work if we were going to make a profit.
This is one of the most common failures or mistakes that people make as they get started, and it’ll probably happen to you, too. When you buy a house at auction, you aren’t going to be able to see inside it until you’ve already signed the check. And even for houses that you can walk through and check out, you aren’t going to have the experience to see all the details that you’ll need to take care of as you get into rehabbing the house.
And you know what? That’s okay! Sometimes you’re going to go over-budget on your rehabs, but if you didn’t go over-budget when you bought the house, you’re still really likely to make a profit or at least break even and learn your lesson.
This is one of my biggest house flipping sins. I can’t help it—I love design, and I love creating beautiful houses. So, whenever I get the chance, I want to make a house as gorgeous, energy efficient, and luxurious as I can. Unfortunately, if I don’t look at the comps in the area and pay attention to the market, I can really get in trouble here.
I’ve personally over-rehabbed a house to the point where it was basically worth $150,000 more than its market value. And I learned the hard way with that mistake that people don’t want to move into a $450,000 house in a $300,000 neighborhood.
There’s nothing wrong with making a house beautiful, but you don’t want to make it worth more than the comps around it. If you do this, you’ll likely get to a point where you actually need to get that higher price to make a good profit margin. Instead, spend a little less and go with a simpler design. You can still pick and choose fun details that will make your home seem like it’s worth more, but you won’t have to have a huge asking price to meet your goals for the property.
At the same time, you don’t want to do too little. I remember one weird house that Tarek and I worked on. The bathroom didn’t have a door. You couldn’t see directly into it from the living room, but you also couldn’t lock yourself in for some privacy. We decided to chance it on that one, and it came back to bite us. All of our buyers saw that bathroom and said, “Uh…I don’t think so…”
Remember, you make your money on flip houses by getting a great deal on a property and then bringing it up to market value. If you skimp on certain details to try to save money and improve your margin, you might fall short of your target market value and end up with a flop.
Successes You Can Look Forward To
So now that you know a few of the most common failures and how they can make house flipping a lot harder, let’s talk about the successes you’re going to see when you stick with your real estate investing business.
Getting That First Big Paycheck – There’s no feeling in the world like making your first sale and getting that check. It happens a lot faster than you might think, and it’s so gratifying that it makes all of your work and research worth it. When we got our first check, all I wanted to do was keep on investing!
Meeting the People Who Buy Your Houses – When you do a great job rehabbing a distressed property, you create a beautiful place to live. Then your buyers come in and get a great deal on a newly renovated home, and they get so excited about moving in. Meeting the families and couples who’ve bought our houses has been hugely rewarding for me.
Meeting the Neighbors – Want a reminder that your work matters and that you’re doing something good for the community? Talk with the neighbors after you rehab a house and sell it to a nice family. They’re so grateful and glad to see concrete, positive changes in their community, and it’s just wonderful talking with them.
If you’re feeling intimidated about getting started or if you’re feeling discouraged because you’ve made a few mistakes, keep these things in mind and keep working toward your goals. You’ll be a successful real estate investor before you know it!
About Christina: Christina El Moussa, along with her husband and business partner Tarek El Moussa, is an experienced real estate investor and reality TV star. Since starting Success Path Education, a program providing real estate investment training, the couple has helped students all over the country successfully find and flip houses. Please visit www.SuccessPathEducation.com for more details.
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