Flipping properties requires you to:
(1) Determine the price you can sell the home for in 30 days or less based not only on market dynamics for that specific section of the market at the time you're going to sell it but also the final condition and upgrades of the newly-renovated home
(2) Obtain researched estimates to renovate the property either before you make an offer or while you're in a general due diligence period, which allows you to perform inspections and research about the property and re-negotiate, if necessary
(3) Factor in ALL COSTS associated with the purchase (costs to buy and sell, carrying costs, renovations, insurance, landscaping, utilities, etc.)
(4) Set a reasonable amount of time to perform repairs, which will help you accurately determine your carrying costs
(5) Find something you can add to the house that makes it "pop" so the property results in a flip ... not a flop, which could be something as simple as a nice backsplash in the kitchen or a cool tile pattern in the master bathroom shower
(6) Determine what your required return on investment will be BEFORE YOU MAKE AN OFFER. As an example, my required return on investment on the properties I flip is 25% or a minimum of $25,000
(7) Once you have all of that information, THEN you can make your offer
Things to avoid:
(1) Not identifying your required return on investment. If you don't know this, how can you play red light, green light on an investment opportunity? Investors that haven't identified a required return on investment are professional lookers ... not investors.
(2) Convincing yourself that you can overprice the listing once renovated because you'll be better than the competition in order to achieve your required return on investment. The key is to be a more attractive option for the same basic price as your competition so buyers fight over your listing before others.
(3) Relying on professionals with no experience flipping properties. If you're friends with your contractor and/or realtor and they haven't performed a flip before, you can't rely on their information, timelines and budgets - all of which impact your bottom line.
(4) Not forecasting your project from start to finish and getting commitments from other people on your Team. If you buy a project because it achieves your required return on investment but the contractor you trust can't start renovating until 6 weeks after closing ... you have a problem! You'll either have to hire someone based on a recommendation or try and perform some of the work yourself, which may not be the highest and best use of your time.
(5) Flipping in an area with very little turnover. The idea is to FLIP the property. If you buy a home in an area where the average days on market is 6 months and you haven't accounted for that in your strategy ... you have a problem!
(6) Not reacting to the market's feedback once you list your renovated home for sale. If the market is telling you the home is overpriced (either directly through feedback or indirectly through a general lack of interest and/or offers), you need to reduce your asking price. If the asking price you've set is the only price you can comfortably afford to sell it for in order to achieve your required return on investment, that's not a good flip.
(7) If any portion of your project was not in line with your expectations and you failed at achieving your goals throughout each step of the home flipping process, recognize that some profit is better than no profit. This may mean reducing the price lower than you originally intended, accepting a slightly lower offer than your perception of full market value, etc. Kenny Rogers offers sage advice in his song "The Gambler" when he said:
You've got to know when to hold 'em
Know when to fold 'em
Know when to walk away
And know when to run…
For even more information, click here to listen to an episode of The Brian Beatty Real Estate Show which is full of valuable advice for everyone from first time real estate investors to seasoned veterans.
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