Whether this is your first flip or your 20th flip, there are strategies you can use to help make your business even more successful.
Know your limitations, do your homework and, by all means, have a detailed plan to succeed with your projects.
Whether this is your first flip or your 20th flip, there are strategies you can use to help make your business even more successful. Fixing-and-flipping homes can be profitable for real estate investors in a number of different cycles.
An important thing to keep in mind when starting out is to always be honest with yourself and understand your limitations as an investor. Fooling yourself into believing this business is easy will only leave you vulnerable to things that could negatively affect your fix-and-flip project.
As a real estate investor who has many years of firsthand experience in this business, I offer other investors these five techniques that I have found to be effective in making my own fix-and-flip projects succeed.
Budgeting is Essential
It should come as no surprise that having a budget and keeping to it are absolutely necessary when executing your fix-and-flip. Making a clear rehab budget before you even begin the project will let both you and your contractor know exactly how much you want to spend. If you go over budget, you risk not being able to sell the property for enough money to earn back the costs you put into it, thereby losing profits.
My rule of thumb is simple: I don’t go forward with a project if the rehab will cost me more than 35 percent of the property’s value. I standardize the materials I use for each rehab such as countertops, flooring, cabinets and appliances. This will not only give me an itemized list of my expenses without leaving it to my contractor’s discretion, but will also save me time—and time is essential for any fix-and-flip.
Timing is Everything
The faster you can complete a flip, the better. Get in, rehab it and sell it quickly so you can move on to your next project. Speed and efficiency will only help you with your overall profits. If I buy a property at $200,000 and put in $40,000 for renovations, and I sell the property within six months for $300,000, then I would be making a 50 percent return on my investment, whereas if it takes me a year, I would only see a 25 percent return.
The longer you are involved with a property, the more money you risk losing. You’re also leaving yourself open to uncontrollable circumstances arising, such as renovation issues and depreciation in the home’s value. Permits can also hinder your timeline, so knowing your municipality’s rules and regulations regarding renovations will propel the process faster.
Choose the Right Season for Investing
Spring into summer is the best time of year to sell a property, so strategically plan your purchase so your sale date falls within that time frame. People don’t typically like moving during the winter months, especially in northern states where they must contend with freezing temperatures and snow.
Start your renovations in the fall with the outside of the home, first by painting the exterior or fixing the roof. When cold weather sets in, complete interior work such as installing carpeting, countertops and appliances, or painting rooms. By the time spring arrives, the flowers and landscaping you planted will be in full bloom, increasing the home’s curb appeal for selling.
Find the Right Contractor
You’ll need to find someone you can trust to complete your flip in a timely manner. I have found that for every thousand dollars I spend, the contractor should complete a thousand dollars’ worth of work each day, so if you have invested $30,000, then the project can be done within 30 days. Working closely with your contractor will only ensure the rehab stays within both your time frame and budget. Vet the pool of potential contractors by checking with the Better Business Bureau for customer complaints, getting referrals or recommendations and reviewing other work the contractor has done.
Location is Key
Location can make all the difference for a successful fix-and-flip, so be aware of things in close proximity to your investment that could potentially drive away a buyer, such as a congested main street or noisy railroad tracks. Purchasing a home in a subdivision is a much better investment than something in a rural area because subdivisions have more clearly delineated property lines, and it will be much easier for you to determine comps. Plus, families tend to prefer homes in subdivisions with good school districts, so you’ll only be expanding the pool of possible buyers interested in your property.
The location of your home will also help you evaluate its value and determine how much you will spend on renovations. You want to make sure you aren’t overdoing it with upgrades on a home that doesn’t warrant them based on the area where it is located.
The Art of Selling
Going forward with your future fix-and-flip deals, you should already know before you even buy the investment property what you are going to sell it for. Use those comps wisely, because your buyer, the appraiser and even the buyer’s lender will as well. Get the real estate agents who will be selling the home ready to start marketing the property as renovations wind down.
My final words of advice are: “The best deal I did is the one I didn’t do.” Be smart with your money and know when to walk away from something that would not have been profitable for you. Don’t force it. Know when to hold and know when to fold, or more appropriately, know when to fix-and-flip so your investments don’t flop.