There’s some serious money to be made from flipping houses. However, if you think it’s a glamorous side hustle where you sit back and watch the money roll in, you’re very much mistaken.
In order to be a successful fix and flipper, you need to hustle and employ the best fix and flip practices.
So, what are the best tips for first-time fix and flippers? We’re here to answer all that (and more). If your new year’s resolution is to begin a successful fix and flip business, check out this list of the best beginner fix and flip tips for 2021.
1. Understand the Fix and Flip Process
Before even looking at potential properties, you need to understand the house flipping process. This may sound obvious, but it’s something that people often take for granted with fix and flips.
From finding initial financing, to your exit strategy – and everything in between – you need to know every step like the back of your hand. If you don’t, you might lose money on your investment.
So, do yourself a favor. If you’re unsure of the process, do your research, consult experts in the industry, and build the right foundation before you start framing the structure. And then come back to the other 9 tips on the list.
2. Build Your Team of Advisors
If you’re new to the game, you want to surround yourself with the best and most experienced people you can. Believe it or not, there are a lot of different professionals involved in a fix and flip journey. Here’s a list of the expert advisors you may need to talk to:
- Real Estate Agent
- Private Money Lender
- Conventional Lender
- Property Manager
- Interior Designer
And while it may be tempting to cut corners here, as a new investor, you want the best people in your corner. Therefore, our second tip is to have an expert real estate team. This will ensure every step (or misstep) of your flip is handled professionally and with the best judgement.
3. Study Your Local Real Estate Market
Having a detailed understanding of your local real estate market is probably just as important as understanding the house flipping process itself.
There are a lot of minuscule details and quirks your local area could present to you. These could have a significant impact on whether your first fix and flip is successful or not. For example, permitting requirements and timelines vary wildly on a location by location basis.
After you’ve studied the market on your own, consult your real estate advisor to understand who your target market is. In other words, who are you going to be selling your fix and flip to? This way you can tailor renovations and improvements to this price point. As a result, you’ll be creating a property that you know someone in your local market would buy.
Other things to learn about your local real estate market are the different schools districts and ratings, the local laws related to construction or real estate, and if there are any COVID-19 related restrictions that may delay your plans.
4. Come Up With a Business Plan
As Benjamin Franklin once said, “fail to plan, plan to fail.” This is true in every aspect of flipping houses. However, perhaps none more so than coming up with your business plan.
If you’re serious about becoming a full-time fix and flipper, your first fix and flip needs to generate the profits that will get you on that ladder. To do that, you’ll need to understand the risks involved and create a concrete business plan. This should help you assemble the necessary resources to deal with any unexpected problems along the way.
Put your pen to paper and think through:
- Your goals
- Market analysis
- Funding sources
- Exit strategies
This level of preparedness separates out successful and unsuccessful flippers. Formulate a detailed business plan to ensure you’re the former!
5. Know Your Budget
As mentioned above, an integral part of your business plan is your budget. And, on top of your budget, you should include a buffer.
While we always recommend our borrowers to try to stick to their budget as religiously as possible, we also live in the real world. The reality is that you may hit a stumbling block during the rehab stage or when it comes to flipping the property. A buffer ensures you’re prepared if there are any hiccups along the way.
Moreover, when determining the maximum price you should pay for a property, use the 70:30 rule. This means that you pay no more than 70% of the ARV (after repair value), minus repair costs. If you’re looking to become a successful fix and flipper, keep it 70!
6. Do Your Due Diligence
As a first-time investor, the worst thing you can do is roll the dice and purchase a property without doing your homework. Why take the risk?
A good place to start is by scheduling your licensed inspector to take a look at the property you’re considering and provide a detailed report. You’ll want to double check that the property doesn’t have any major issues with the foundation, mechanics, or any other big ticket items.
Additionally, you’ll want to speak with other members of that expert team you assembled to determine the budget for renovations so that you don’t overpay when purchasing your investment property. It’s a crucial step to analyze the numbers for each property carefully so that you can calculate an accurate ARV and determine whether or not you’re following the aforementioned 70:30 rule.
You also want to make sure the title of the property is free from liens and encumbrances. While experienced investors may go down this road if the price is right, you simply don’t need that headache right now.
All this considered, in order to eliminate risks and maximize your chances of success, make sure you do your due diligence.
7. The Right Renovations
In addition to understanding the house flipping process, it’s also important to know which improvements and renovations to make. Of course, you need to be aware of all the necessary renovations and repairs you have to carry out. However, it’s a good idea to also focus on the rooms that have the biggest impact on the ARV of the property (usually the kitchen and the bathroom).
Furthermore, if you have the budget and if it makes sense for your target buyer, incorporate the newest and smartest technology into these areas:
- Air Conditioning
Technological flourishes like this and paying attention to the ‘money making rooms’ in your property are great ways to get a better return on your investment.
8. Define Your Exit Strategy
The goal of a flip is to sell fast and make a profit. However, fixing and flipping during COVID-19 has made this slightly trickier than before.
While the real estate market has weathered the storm well, it’s certainly not business as usual. Therefore, it’s best to have a couple of different exit strategies up your sleeve, such as the BRRRR method.
This is a good option if you’ve spent over your original budget, took too long to complete the project, or overestimated your sale price. Rather than taking a loss, holding onto the property and renting it out may be a better exit strategy for you.
9. Location, Location, Location
We’ve talked before about learning all you can about the local real estate market in the here and now. However, it’s also worth getting a feel for the neighborhoods that are up and coming.
Simply put, you want to find properties in areas with a bright future, but still have reasonable real estate prices that make for successful flips.
This isn’t easy to figure out alone. Therefore, this is where having the good local network comes in handy. Speak to a local real estate agent or an experienced private money lender, and chances are they’ll have an idea of the local areas that are on the cusp of blowing up.
10. Start Small
This idea has briefly been touched upon in all of our beginner fix and flip tips, but we want to drill down into it one last time. It’s best to start small with your first fix and flip investment.
What kind of project are we talking about? Well, a single-family home with a rehab budget of below $50,000 would be a good place to start.
As you’ll quickly find out, flipping properties requires you to don a lot of hats and learn about different industries or practices you’ve never experienced before. A good network can help, but you also don’t want to go so far out of your comfort zone.
Think of it like exercise. You’re not going to be able to go from a couch potato to marathon runner overnight. The same applies to fixing and flipping. Put in the hours, get a few properties under your belt, and soon you’ll be running rings around your real estate market. If you’re looking to finance your first fix and flip in 2021, get in touch with us and hear about our easy to acquire private money loans.