5 Factors That Slow Down Your Fix And Flip
Purchasing fix and flip properties is truly the way to generate a lot of cash fast for your business. This is, of course, provided that nothing stands in your way from moving the property in a short amount of time. If some obstacle prevents this, this can lock up your capital into a project for well over six to 12-months.
When this happens, it becomes evident that the fix and flip process has been hampered by a potentially bad deal. To avoid this from occurring, your company will want to make sure it does not run into the types of problems that prevent a quick turn over.
The following are some of these issues to watch out for, so that you can keep your capital as liquid as possible.
1. Poor Scouting
When it comes to buying properties, your company must have a good scouting strategy to avoid pitfalls beforehand. The person doing the inspection of a property your company might potentially be interested in moving on should have a keen sense of what it takes and what it costs to turn the property in a timely fashion.
Failure to notice something like serious underlying structural damage to multiple units residing on a property could drag the process of fixing and moving a property out much longer than expected. The more extensive the underlying damage happens to be, the more time it will require to fix and ultimately get the property sold.
Your company should have clear policies in place for governing this process—complete with an itemized checklist for the person doing the inspections to mark off as they go. This will help to ensure that nothing critical has been overlooked during the scouting process.
2. A Natural Disaster
While it is common to not consider the unexpected time delays imposed by a natural disaster occurring and producing even more damage to a property, this sort of scenario happens from time to time. Whether it is a random tornado ripping through a residential area or coastal flooding spreading mold throughout the interior of an investment property or three, natural disasters can be both costly and time consuming.
Sometimes the best way to handle this situation is to develop a risk assessment for this type of outcome for the given area of acquisition interest. This will prevent your company from investing in the path of an area prone to natural disasters.
This way your capital will be better invested in properties you can move much quicker without so much risk and time wasting holding your property sales back.
3. Overvaluing Properties
It is easy to find properties in depressed neighborhoods, purchase them cheap, fix them up and shove them out to market at a much higher price. Unfortunately, if the property is overvalued when you estimate how much to sell the property for, given the area, you may be sitting on this property for a very long time. Worse, you may not get any offers for months or even years.
To prevent this from occurring, your company will need to run comparables and test the market by gradually lowering your resale price from a high value down to a point where you are getting bites from potential buyers. This is better than starting the pricing process too low, because you want to get the highest return on your investment.
Once you get a feel for how to price in a given area, you will want to keep extensive notes on the pricing for that area to ensure that you are monitoring the change in market values as they trend. This will keep your properties moving as you price them more inline with consumer sentiment, rather than getting stuck overvaluing properties against the current market trend.
4. A Marketing Mess
Your company may try to use services like the MLS and other listing methods for moving properties in their marketing campaigns. But, even the real estate professionals representing and showing your properties may not be enough to get the word out to a wide enough segment of the buyer’s market to move your properties quickly enough.
To avoid running into a lot of properties that are not moving in a timely manner out of your company’s portfolio, it will be better for your company to keep an active database of interested investors.
The more investors that reside within your company’s database, the easier it will be to match unsold, repaired properties with individuals who are looking for exactly what you are selling.
This process is made more efficient by having your database return matches based on highly optimized search criteria to ensure that the investors you contact match the best sales criteria you have on file before you contact them with an offer.
5. Getting Locked Up
When it comes to moving properties fast, you must always be extremely clear about all the contract provisions on the resale end of the process. Your buyer might be a savvy investor who spends time adding addendums to a sales contract that could lock you up for far longer than you care to be waiting.
To avoid this problem, you will want to have policies in place that tell you how to best react and respond to a buyer’s addendums to prevent being locked up in a deal that gets dragged out for a very lengthy time.
In fact, it is best to add a few release clauses of your own to the contract so that your company can pull the property at any point where it becomes evident that the buyer is taking too long to execute the purchase of the property for your company’s interests.
Contact Orchard Funding Today
With the real estate market as your oyster, it is time to begin identifying and purchasing the pearls that present themselves as excellent investment properties for your company’s needs. You are now in a position to acquire, fix and flip properties with the speed needed to ensure that your company is generating a regular flow of income in a shorter amount of time.
When you have deals in mind to jump on, Orchard Funding will be there to help you with the capital you need to secure these properties with as few hitches as possible.
Be sure to contact Orchard Funding at (310) 356 – 7373 to talk with someone who can help you obtain financing for your company’s next property acquisition today.