So you’re interested in fixing and flipping houses huh. Well the HGTV shows make it look easy and even sexy. We have an industry of education built on real estate investing gurus selling fixing and flipping houses training and weekend seminar events. There is so much information out there, It makes a person want to scream!
Before you dive into this one strategy of real estate investing there are 7 things you really want to consider to increase your odds for success.
- Do you know the area? There are all sorts of things a Professional Real Estate Investor should know about the territory he or she works in. The price of similar homes (Comps) that have recently sold in the area are only part of the equation. You have to know the schools, what the traffic is like, if the neighborhood is expecting any major changes, and other seemingly minute details.
- Do you know the market? The Arizona real estate market, like other areas, is ever-changing, and even neighborhoods and subdivisions follow their own trends. You have to be able to make accurate predictions on what the property will be worth once the renovations are complete. Please NOTE: NEVER, NEVER, NEVER Buy on Appreciation! Also Never mind about ARV – After Repair Value. Focus on the MV – Market Value. Stay very close to the MV so you won’t be overpriced when ready to sell.
- Do you have a cushion? Whether you’re working with a hard money or private lender (You never, never, never want to use your own cash if you can leverage someone else’s), you must set aside funds for unexpected expenses. Sometimes necessary repairs don’t become apparent until the renovation is underway, and other times they can prove to be far more costly than the budget allows for. For my business, our threshold for purchasing a property is 70% of market value and we need a minimum of 15% profit after we pay the trades, and the lender and the fees of doing the deal.
- Do you understand the holding time? When you’re fixing and flipping houses or other properties, having a solid timeline in mind is essential. Knowing how long you have to complete a project, and keeping everything on schedule, can make a huge difference in the amount of profit you see. Will it take 3 months or 12 months? Be prepared for unforeseen changes.
- Are you aware of the industry? From bidding, through buying, renovating, and selling, you’ll ne
ed to be in contact with numerous professionals. You also have to have a keen understanding of the process, and be familiar with trends. Having an experienced CPA and Attorney is critical. Does your CPA and Attorney invest in real estate? Do they understand the space? They should…
- Do you know a realtor that works in the industry? When flipping houses, don’t try to sell a home on your own. Let a professional list it, market it and negotiate with buyers. It’s important to partner up with an experienced realtor, but not just anyone will do. Ask – Do they own their own home? Have they invested in real estate? Have they done any fix and flips? Have they worked with other real estate investors? If you partner with someone who works in the industry already, you’ll have instant access to a huge knowledge base. You’ll also be working with someone who is highly familiar with your goals, and knows how to flip a home fast, for maximum profit. Heck, you may even have them as a partner since I’m sure they would be eager to earn more than the standard 3% commission.
- Who is going to do the work for you? While some start-ups do all the renovations independently, there are numerous professionals you may need to call on at some point to get an expert job done fast.
Plus, a Professional Real Estate Investor knows how to LEVERAGE other people’s talents. Your time is best used for finding the next deal! Electricians, plumbers, contractors, painters, and other helpers are beneficial, but you’ll need to establish relationships with trustworthy people before you begin and know the best price to pay.
That is the 50,000 foot view of 7 things to know before Fixing and Flipping Houses. If you want to learn more, feel free to attend one of our free events. We have training events and project tours every Saturday.