You want to start flipping homes, but you aren’t sure how to get started or how to get to the finish line? Flipping homes is not complicated, but there is a process to it and in my opinion, the first step is the most important. If you’re in a hot real estate market, you’re no stranger to the lowest inventory rates ever seen. There are more buyers than sellers which is music to a rehabber’s ears. So, follow these steps and you should be well on your way to a successful flip:
#1: Learn the market where you want to invest.
You need to study the market where you want to invest; get in the car and drive the areas. Learn the streets, pay attention to what is happening in the area, take note of the size and styles of the homes, and know what the comparables are. Drive by flips that have been completed and sold. Why is this important? Most markets are super tight when it comes to finding a deal so knowing the area is critical. If you get a deal across your desk in an e-mail from a wholesaler or another investor, you will know if the price they are asking is on point or not. Since you know that neighborhood, you will know what properties sell for and what kind of a rehab will need to be done. You will know the streets and the values—sometimes moving three blocks over will yield a completely different ARV. You won’t lose time in making an offer because you already know the neighborhood and can pull the trigger quickly if it’s a good deal.
#2: Learn to run your numbers!
Learn what makes a good deal or a great deal; most investors don’t go above 65-70 percent ARV (after repair value—the value when the home is complete). Investors generally purchase a property at 65-70 cents on the dollar including repairs. Speak with other rehabbers and look at their projects to see what they are doing. Ask them how much their renovation costs were; I have yet to have an investor not share what they have spent. It will help you start to get an idea of how much things cost depending on how extensive the renovation will be.
#3: Get your funding in place.
If you do not have the funds personally, start speaking with lenders and find one you feel comfortable with. If you have private investors, speak with them as well and see what kind of terms they are looking to get and how much they will fund. It is important to know how much money out of your pocket you will need to come to the table with and different lenders have different down payment and ARV funding criteria. Ask the lender when your payments are due—are you making monthly interest payments or all at the end? How much do they charge per draw? Are you paying interest on the full amount of rehab funds or only on the funds you have already drawn (used)? Do they require an appraisal or only a desktop review of comps? It’s important to know all this so there are no surprises as you go through the process.
#4: Look for a general contractor or builder to do the rehab.
Speak with several, go look at their projects, speak with some of their prior clients and see what their experiences were. Depending on the size of your project, make sure they have the licensing and insurance required.
#5: Line up your professionals.
When you find a property, have a real estate professional help you with the offer/contract and find a closing attorney or title company that you would like to work with. I would suggest finding one you like and building that relationship. More likely than not, you will be using an LLC to invest and using the same closing firm will make things easier since they will already have your company documents on file.
#6: Do inspections!
If you are purchasing from a wholesaler, they may not give you an inspection period so you will need to do any due diligence up front. Find a home inspector or contractor that can help you assess the condition of the property and point out any major defects. If you’re under contract directly with a seller, you should build in a few days to have your inspections done. Once you have done several flips you will start to know what to look for and identify any potential big issues.
#7: Close on the property.
Now the fun begins!
#8: Have utilities turned on.
I cannot tell you how many times investors do not turn the utilities on and then lose precious time getting them on. Contractors use power tools—do you want them to work in the dark? Plus, when you are ready to hit the market, the buyers will need the utilities on for their inspection.
#9 Obtain permits.
Make sure if there are any permits required for the work being done, that the contractor obtains them. More and more buyers, especially when it comes to rehabbed properties are asking for copies of the permits and if they aren’t, their inspectors are. It’s just not worth cutting that corner.
#10: Find a real estate agent who understands investors and investing.
Having a real estate professional on your team who understands investing will be a huge asset to you. Oftentimes they can help you with some of the design finishes such as trending paint colors and counter tops. Enlist a real estate professional to sell your finished renovation project and let them do what they do best. A great Realtor® can also bring you some amazing deals before they hit the market or properties with distressed sellers that don’t have the time or inclination to go the retail listing route.
#11 SELL!
You’ve sold your project, made some money (hopefully) and ready for the next! Remember to find a good CPA as well because you will need to set some money aside to pay Uncle Sam.
Lorraine Beato is an Atlanta, Georgia Realtor specializing in single-family residential homes, investment acquisitions, and upscale renovations. She is also a former appraiser.
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