A successful real estate investor is one who always does their homework and understands the inner workings of any specific investment deal they’re walking into. What makes a fix-and-flip project different from a fix-and-hold, for example? What tips can ensure a streamlined flipping process and a successful outcome?
No matter how glamorous or easy the work may seem from a distance, you won’t see much of a result without sweat equity and a well thought out strategy. Here are some of the best tips to either kick off your first project or bolster an already robust fix-and-flip portfolio.
Understanding the process
Are there specific neighborhoods you’re considering for investment opportunities, and if so, why there? How much work are you willing to put into a fixer-upper and what’s your budget? Do you have reliable contacts, and do you know what the financing process is like for fix-and-flip projects?
These are just a few of the questions you should not just be asking, but also answering long before you sit down with a potential lender. Doing your homework not only makes you seem knowledgeable and reliable, but also like a safe bet a lender can take.
Do your homework
Always an important reminder, but especially for those first-time investors. Schedule time with a licensed inspector to walk through the property and provide you with a detailed report. If you’re facing major issues (i.e. foundation, mechanics, or other big ticket items), it might be safer to pass on the opportunity and go with a property that needs more cosmetic work than anything else.
This is especially important if you are calculating your gains. Enter the “70% Rule” – a guideline that provides investors with a framework for how to calculate the spending cap for an investment property. No one goes into flipping properties to come out with thin margins and avoiding high repair costs – in addition to overpaying for a property – can be avoided best when an action plan is put in place up front.
Be realistic with the renovations
It might be tempting to go overboard and make the property the hottest one on the block, but it’s important to keep the project in perspective. While you want to turn a healthy profit from the flip, you don’t want to overprice the property out of the market. Focus on basic renovations and important rooms: backsplash in the kitchen; a new coat of paint on the walls and cabinets; updated fixtures in the bathrooms.
Huge renovations can not only become money drains, but they can delay the flipping process, taking you longer to get the property back on the market and exit your investment. Leave the extravagant items and unique taste additions to those who end up buying the property from you.
There’s no “I” in team
Building a team of trusted professionals will make it far easier to delegate work and see renovations to the finish line. From contractors to real estate agents; electricians to plumbers, investing sometime in creating strong partnerships can be the difference maker between losing money on a project and successfully flipping it. Getting a business plan together isn’t just about the number crunching. Knowing who to go to when the project is going according to plan – and even more so when it’s not – can make the entire process more manageable and enjoyable.
If you take the right steps and do the heavy lifting before you even search for a lender to work with, fixing and flipping properties can become a lucrative career. If you have a plan in place and want to learn more about your fix-and-flip financing options, call Temple View today.