There is a great deal of money to be made in fixing and flipping houses, but only for the most savvy investors. While fixing and flipping houses can be profitable, it also takes a great deal of work and time is of the essence.
Before you put a single dime of money down on an investment property, you want to make sure you have a good team in place and an even better plan. Doing your research and having plenty of backup plans will save your bottom line. Here are 8 key tips for beginners to master the fix & flip.
1. High risk = high reward. Don’t make a risky investment until you are ready.
Too often, new investors get caught up in the spectacular amount of money to be made from an investment property and miss a huge number of red flags that can end up sending them to the poorhouse instead. When you are first starting out, look for investments with minimal risk even if it has a smaller profit margin.
2. Success can be more dangerous than failure
More people die every year descending Mt. Everest than those who die ascending it. In fact, only 15% of climbers die while ascending. Why? They plan and prepare and train for the ascent. But once they have achieved the goal, they drop their guard and become less cautious.
Once you have a few successful flips under your belt, it can be tempting to invest more and more until you are leveraged to the hilt and over-extended. It is important to resist this urge and proceed with caution every step of the way – particularly after you have just experienced a big win.
3. Become an expert on every aspect of real estate
Eventually, you are going to want to assemble a crack team that includes a real estate agent, contractor, attorney, handyman, escrow and title, but in the meantime you need to give yourself a Master’s degree in real estate.
Some of the most successful people in any industry read more than an hour a day, and often consume multiple books in a single day. From finance to contracts to roofing to plumbing, you should know every inch of the business almost as well as the professionals do.
4. Know exactly what every day costs you
From the second you sign on the dotted line at closing, every minute counts and every day is costing you money.
Fix and flip investments are generally backed by hard money loans that are granted based on the value of the property, not the borrower’s personal credit worthiness. This is both a safer way to get a loan, but is intended to be shorter-term.
Every day that your property is being fixed or sits on the market is increasing the interest, which is cutting into your profits. The faster a property can be fixed up and flipped, the higher your profit margin will be.
5. Understand everything about the market
In many neighborhoods property values can vary greatly even from one block to the next.
In addition, you need to make sure that any upgrades you make are in keeping not only with the property values in the area but the specific demographic that is most likely to purchase the home. This means you need to know everything from what kinds of countertops are going to provide you the best return in the kitchen, to what kind of bathtub and sink will give you the best return in the bathroom.
While smart home features might make buyers salivate in an area booming with Millennials, it might actually dissuade older couples from making an offer. You need to know exactly who your most likely buyer is going to be to that area and cater strategically to their very specific needs on the smallest budget possible.
Making money flipping houses involves being part contractor, part real estate agent, part money manager and part psychologist.
6. Sometimes saving money can be the most expensive lesson of all
Shady businesses exist in every industry and at every level. Just because a business charges a lot for their services, doesn’t make them reputable. Always, always, always do your homework. Check references and don’t buy into the belief that just because someone charges the most that makes them the best.
Similarly, always be wary of the lowest bidder. The importance of checking references before working with a new supplier, contractor, laborer or agent of any kind cannot be stressed enough.
As a real estate flipper, you will have a million things on your plate, but what you can’t afford to do is get ripped off by not checking out a vendor, supplier or contractor before hiring or contracting them.
Having a vendor or supplier deliver late on an order is already costly. Having to completely redo a job because it was done incompetently is an entirely different level of expense you don’t want to have to deal with.
7. Keep the House Empty While You Fix It
Often, what people will be selling you is a home. But what you are buying is an investment property, nothing more.
The majority of the time, what makes a property a prime profit opportunity is the very fact that owners fell on hard times and could not keep the property up or keep up on payments. This means that you will often be buying property from desperate people who are trying to recoup as much of their investment as they can.
In many cases, they may want you to buy the property but allow them to keep living in it as a rental property. Fixing and flipping houses depends on having empty houses to work with, free from the emotional ties of past owners. Don’t let emotions get in the way of your profit margin. Just like them, you have mouths to feed and people counting on you to pay them. This could end up causing more problems for everyone in the long run.
8. Get A Hard Money Loan
Hard money loans are perfect for fix and flips. They allow for fast approval so you don’t miss the perfect opportunity.
They are created as short-term loans. Often the borrower can pay it off with small payments while the home is being fixed, and then on large payment at the end with the sale of the house.
Contact Orchard Funding Today
If you are ready to sink your teeth into the real estate market, Orchard Funding can help. We offer competitive financing at competitive rates to help get your business up and running. Call us today at (310) 356-7373.