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If you’ve watched HGTV, you are familiar with the concept of flipping homes. Buying a distressed property, fixing it and bringing it up to code, and putting it back on the market to make a profit. It’s an appealing way to ease into the world of real estate investment, and for those already in it, a great way to diversify their portfolio.
Never mind the oversimplification of the process as it’s shown on T.V. Like any other business venture, one shouldn’t dive into flipping properties without some level of understanding, a proper plan, and a mapped-out budget. In this piece, we’re going to highlight some key things to keep in mind as you take on your first fix-and-flip project.
What is your budget and business plan?
Like any other business, you’re going to need a plan. What timeline do you have in place and what budget are you working with? What is the scope of your project? Setting some basic ground rules for yourself not only ensures that you have a lay of the land, so to speak, but also that you stick to the plan with little to no deviation. Drawing out an appropriate timeline and budget also lets you survey what financing opportunities you may need to consider. When the time comes for you to sit with a potential lender, you’ll want to have all your ducks in a row. The more prepared you look and sound, the more likely your project will be financially supported.
Speaking of business plan…
It’s important for first-time investors to not dive into a project that will quickly and easily overwhelm them. Look for properties that need cosmetic updates—kitchen or bathroom updates, new flooring, paint—and avoid larger, more costly issues like structural or mechanical problems. Not only will they eat into your budget and take longer to complete, but that’s when permit requirements come into the picture, making the flip a more complicated matter.
While sticking to a property that needs minor work done might result in narrower margins upon selling, it’s a great way to get experience, seeing a project from beginning to end. The quick fix properties are also bound to sell faster and be lower risk.
Know your options
Imagine making an offer on a house, getting that offer approved, but then not having the money readily available to close the deal. Pursuing your financing options at the start of any project might feel a bit like putting the horse before the cart, but it’s important to explore what options you have available to you and what you’ll need for the application process. Begin researching the best lending options for fix-and-flip investors, look into reputable lenders, and become familiar with the application process.
Research, research, research
If a property’s price is too good to be true, it just might be. Now, that’s not to say you should drive past a good deal, but it does mean you need to do your due diligence. Taking on a fix-and-flip property is more than just investing in the sole house. You’ll want to evaluate the region and things like the job market in the area—does it have a booming local economy, or is there a high unemployment rate? What kinds of industries are thriving in the region? What growth trends are happening and what is the area’s age demographics? Also important is noting where the property is located. If it’s not in a downtown area, is it still somewhere accessible? These are just some of the questions worth answering and speaking with local real estate agents or realtors might prove to be a wonderful resource. You don’t want to invest in a property located in a slow and quiet community with little opportunity for you to make a real and fast profit.
Be a part of a community
For first time flippers, networking and surrounding yourself with seasoned investors, real estate agents, and others from the industry is an important way to make valuable connections. With so much networking happening virtually—especially in the time of COVID-19—take advantage of all the different social media platforms creating boundless space for learning and conversation. Be an active member, whether that means asking questions publicly or participating in webinars. The more involved you are, the more likely you will make meaningful connections with potential mentors.
Don’t waste time
So, the deal is done, you closed on a property and it is officially yours to do what you want with. Congrats! Now get down to business!Each month that passes is one where you’re paying interest, utilities, taxes, and insurance. The idea is to get renovations done as quickly as is possible—without taking shortcuts, of course—so that the house can go back on the market. The faster you renovate, the faster you can sell, make your money, and pay back that loan.
And while it’s virtually impossible to not hit any bumps on the road, it’s up to you as the investor to make sure you’re staying on track with your project timeline. Make sure you’re working with reputable contractors who won’t drag their feet or begin changing their pricing halfway through the completion of a project. Again, this is where meaningful connections can pay off.
Knowing your strengths and limits is probably one of the most important aspects to being a property flipper. You don’t want to take on every single job that needs to be done. Know the difference between taking care of a cosmetic update and bringing in a professional for a more difficult—or potentially dangerous—job. This is also important when factoring in that your property will need to pass inspection. Divvying up the work appropriately will ensure that money and time will be saved down the line.
Creating wealth through real estate is a rewarding experience for anyone, but especially those who are breaking into the world of entrepreneurship. By going into a project with a clear plan in mind, you’re more likely to succeed, whether it’s your first flip or your tenth.
And when it comes time to find the right partner to finance your next project, trust Temple View to help. Contact us today.