Bestselling author and real estate investor, David Greene, has seen it all when it comes to flipping houses. Recently, on his podcast “Real Talk Real Estate,” he spoke with investor and newly-minted flipper Tedman Chang about lessons that can be learned from failed flips.
Learn More: Barbara Corcoran — This Is the ‘Real Problem’ With the Housing Market Right Now
Consider This: How Middle-Class Earners Are Quietly Becoming Millionaires — and How You Can, Too
The series on “Nightmare Deals” focuses on deals that went wrong, highlighting issues that are often not typically discussed or considered. Here is what Tedman Chang learned from his flips gone wrong, along with the advice that real estate expert David Greene offers on how to avoid these mistakes.
Numbers Can Be Deceiving
While common expert advice on setting a sale price is to “trust the numbers,” these numbers may not be what they seem. Chang, a San Francisco-based tech worker who began investing within the last two years, explained to Greene that his recent flip went awry after setting the price too high.
The home was purchased for $350,000 in an up-and-coming area of North Austin, which had experienced a thriving market during the COVID-19 pandemic. Chang, along with another investor, estimated that it would take approximately $100,000 to $110,000 to rehab the home. They also anticipated being able to sell the house for $625,000, making a sizable return on their investment. The sale price was based on comps in the area, which confirmed that similar-sized properties were selling for that amount.
Unfortunately, after listing the property in March 2024 for $639,000, the home remained unsold for over a month without receiving an offer. After five months and several reductions, the property finally went into escrow for considerably less than anticipated.
Check Out: Real Estate Agents Explain Why You Should Never Invest In These 7 Home Features
The Truth Behind the Numbers
While it is generally sound advice to use comps to set a sale price for a property, it is essential to understand that the numbers may not tell the whole story. Greene explained that hopeful flippers should understand “what’s driving the numbers,” including the fact that the Austin market may have been inflated by things like COVID moves.
According to Realtor.com, comps are an important tool, but they can be deceiving, particularly if they are for houses that are still on the market, as that shows the listing price and not the purchase price.
He also emphasized the importance of knowing not only the number of active listings but also the number that have gone pending, as that may give a more accurate portrayal of the local market. He commended Chang for buying the property at a low price, which helped to ensure he wouldn’t lose money on the deal, even when the flip didn’t go as planned.
Contractor Woes
The second flip described by Chang involved a home in the same area of Austin, Texas, purchased for $450,000. Chang anticipated investing $60,000 into the property for mostly cosmetic repairs and upgrades. The tech worker planned to have the property on the market within two to three months, but the project ended up being delayed by permitting issues and a contractor who left before it was finished.
While a new contractor has been hired to complete the job, the flip was running $10,000 to $20,000 over budget. Chang noted that he was saved by having income stability, since he was only doing flipping on the side and had not quit his 9-to-5.
Avoiding Common Flipping Mistakes
Greene said that while flippers may run into problems with any project, they can help alleviate the potential for disaster by requiring buyers to be pre-approved through a predetermined lender and being able to check on properties in person. He also stated that certain markets are more sensitive to corrections, such as hubs of industry that generally outpace the rest of the country during times of growth but suffer more significantly when the overall market cools.
According to recent insight on Homes.com, first-time flippers can set themselves up for success by doing their research and working with an experienced real estate agent. They should also get multiple bids on projects to ensure that they do not underestimate the cost of the project and stay away from DIY unless they are an expert in the area.
More From GOBankingRates
- 6 Costco Products That Have the Most Customer Complaints
- Mark Cuban Warns of 'Red Rural Recession' -- 4 States That Could Get Hit Hard
- How Middle-Class Earners Are Quietly Becoming Millionaires -- and How You Can, Too
- 4 Low-Risk Ways To Build Your Savings in 2025
This article originally appeared on GOBankingRates.com: What This Real Estate Expert Learned From ‘Failed Flips’ and How You Can Avoid His Mistakes
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
