How to Fix and Flip Homes

Beginner's Guide to House Flipping in 2018

How to Fix and Flip Houses

  • Have a Plan, Don’t Wing It

First, decide on your goals. Are you looking to fix and flip in the shortest time, hold on to the property for an investment or make a certain amount of money in a year? Cre3ating a business plan keeps you focused on your goals and helps to streamline the process. Write it down!

  • Choose Your Property Wisely

Don’t just buy the first property you see. A lot of beginners act impulsively. Don’t jump at the first purchase because you are excited to get started. Calm down for a minute. Step back and carefully consider every deal. Take the time to view multiple properties and evaluate all your options. You might miss a better deal because you were impatient. Don’t be impatient!

  • Know Your Numbers

Conduct a thorough financial analysis. Some sellers might try to over-value their property. It’s important to do your research so you don’t get stuck in a bad deal.

Put the time into finding out the actual data you need to make an informed choice. Some important numbers to keep in mind are:

  1. ARV (After Repair Value)
  2. Cost To Rehab
  3. Net Income (Income / Expenses)
  4. Return on Investment (Net Income / Total Investment)
  • Location, Location, Location

Look for the worst house in the best neighborhood rather than the best house in the worst neighborhood. Fixer-upper properties in great neighborhoods are often the best value for fix and flips or property investment. Streets matter too. Houses on busy streets tend to take longer to sell. Take the time to learn the location before purchasing.

  • Understand Holding Costs

Holding costs are the expenses incurred between the time you buy the property and the time you sell the property. They are the cost for holding onto a property for any given time.

This can include mortgage insurance, property taxes, utility bills and any repairs needed.

There is a time commitment to holding onto property. It’s important to plan for this. Are you going to be living on the property while conducting DIY home improvements? Or are you just looking to buy and hold the property while renting it out? Depending on your specific plan, it might be necessary to hire a property management company especially if you plan to hold multiple properties. Hiring a property management company is another holding cost to investigate before purchase.

Again, don’t rush into this but instead take your planning at the start to avoid headaches later.

  • Networking Matters

Join a real estate investor group or association. There are a number of organizations or groups of real estate investors that get together to share information and tips. The Real Estate Investor Association (REIA) is a national non-profit trade organization that can connect with local groups. This is a great resource to pick up helpful advice relevant to your local area. As with any business, building a network is always beneficial.

  • Set Up Investment Entities

Set up a real estate investment entity (LLC, S-Corp, etc). The sooner you do this the easier it is to protect your investments. It also offers more potential for tax benefits. Most lenders require this of you anyway, so doing this the sooner the better.

  • Understand Your Skill Set

Have an honest look at what you are good at and what you are not. If you are not handy then don’t do the rehab work yourself, hire a contractor instead. No sense of interior decorating and design? Hire a professional stager.  It will save you a lot of time and money if you focus on what you are good at instead of trying to do things as cheap as possible all by yourself and then making costly mistakes.

  • Staging Is Underrated

Home staging is an important and effective tool for house flippers. The National Association of Realtors conducted a study that found staged properties sell up to 2.5 times faster while collecting 17% more money. Even if the staging costs you a few thousand dollars it is usually easily makes up for the cost. You can either hire a professional stager or stage it yourself. If you decide to do it yourself, then take time to research this area. If you don’t have an eye for it then its probably better to hire a professional.

  • Choose Your Contractor

Unless you are an experienced handyman, it’s likely you will be working with a contractor for a fix and flip. It’s important to have a contractor you trust because a general contractor directly impacts the success or failure of your fix and flip investment. For such important work, you should make your selection carefully. If you aren’t experienced yourself, then take the time to check references. Try to find a contractor with projects similar to yours that you can visit in person to ensure the quality of the improvements. Don’t forget to check their contractor license and insurance.

  • Use A Local Realtor

As you approach the time to list your property start looking at local real estate agents. A local real estate agent knows the neighborhood and the profile of current buyers. They understand the quirks of selling in that particular area. Ask them how they intend to market the property and what their record is selling homes the size of your property. If you intend on continuing to fix and flip it’s valuable to establish a relationship with local real estate agents.

  • Consider A Partner

If you are a beginner and doing your first deal, it could be a good idea to partner up with someone with experience. This can be a good way to break into real estate investing especially if you are doing this on your spare time while maintaining a full time job. Look for someone with a skill set that complements your own.

  • Start Small

Don’t jump into the deep end the first time. Some first time investors bite off more than they can chew and get into financial trouble because they didn’t completely understand all the complexities of the project they are undertaking. It makes sense to start with a $50K rehab of a single family home instead of jumping right into a $300K multi-family property that requires a complete teardown and rebuild. Don’t jump into a complex project for your first deal like lifting a home on the beach in a hurricane zone. Progress in deal complexity as your experience and knowledge increases.

  • Understand the Market

Understanding the local market is important to  keeping your budget optimized. Do some research on the neighborhood and if possible other homes that recently sold. If most homes have $75/square foot kitchen tiling, don’t waste your money on $150/square foot luxury tiles. Talk to your local realtor for any locally relevant tips for your rehab.

  • Time Is Money

Wasting time is wasting money. If you find what you know is a good deal then be decisive. A distressed property that would make a great investment is not going to stay on the market a long time. The faster you finish a rehab the quicker you can put the property on the market. When you receive a good offer then take it rather than waiting to try to maximize your profits and end up paying more in holding costs.

  • Stay Aware of Your Cash Situation

To maintain a fix and flip workflow, you are going to need cash available. It’s important to keep track of your finances and know how much cash you have available at any moment. Running out of money can potentially ruin your project so it’s important to have contingencies in case you run into the inevitable cost overruns.

  • Ask, Ask, Ask

Even after you do all the research you might still have questions. Don’t hesitate to give our lending professionals a call with any questions you might have. Our team has decades of experience in all variety of real estate deals and can help you along the way.  We are here to make your project as easy as humanly possible.

 

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