Tuesday, December 11, 2018 / by Geoffrey Zahler
On yesterday's House Rules: Real Estate in Sin City (https://youtu.be/VP9_BhnM_Rs), we discussed the Top 5 Ways to make sure your next Flip project doesn't become a Flop! We know TV shows are glamorizing the idea of buying a home, fixing it up, and making crazy profits. It's not that easy people. This is a business for most people, who do them in volume. For my baseball fans, successful flippers try to simply hit singles and doubles. Every once in a while they hit a home run, which is great, but they do everything in their power to NOT STRIKE OUT! Avoiding bad flips is the key to staying in the flip business, and here are the top 5 ways you can avoid a flop!
HAVE A PLAN:
This one sounds simple, but it's important. Are you going to be buying homes, condos, or townhomes? Are you going to just put in some paint and maybe some new flooring, or are you going to be knocking down walls to open space up, add space, and go "full remodel"? Knowing what you are comfortable with doing and then dong it sounds like a simple plan, but far too often we see amateur flippers get a property, and then change their plans. As soon as you get out of your plan, and out of your comfort level, your Flip could easily become a Flop. Create a business plan, and stick to it!
KNOW YOUR MARKET:
Buying Single Family homes in Summerlin. Great. What are homes selling for in the area? What are flips selling for in the same area? How long are homes on the market for? Do Flip homes that have been upgraded and updated sell for more and do they sell faster? How many months of inventory are in the area you're looking to flip? What is the Buyer profile of the area you're flipping in? Does it it match with your plan for the home?
Flipping homes is more than making a house pretty. You need to study the market. You need to eliminate as many unknown variables as possible. By knowing the market BETTER than your competition, you'll know when to make buys, and when to move on to another project. Working with a PROFESSIONAL REALTOR is your key to this part. They have access to the most accurate, most timely data (Don't rely on Zillow, PLEASE), and can put you in the right position for success.
STICK TO YOUR BUDGET:
If you have budgeted $15,000 for the rehab of a home, don't go crazy. Stick to your budget. If you are in over your head, you're going to try and make up money by just "adding it to the sales price." When the market alters, this will leave you in the poor house. You're going to have to make decisions. Do you do new countertops in the bathrooms or do you upgrade the appliances? Do you paint the exterior of the home, or do you landscape? Everything you do, especially when you're getting close to your budget, needs to help your Return on Investment (ROI). If an upgrade does not make you money or will not significantly alter the sales timeframe, don't consider doing it. But Geoff, I LOVE the custom backsplash in the kitchen on a home we just saw and want to replicate it on this flip. Great, is that backsplash, that is going to cost you $2,000 to do going to really make you at least $2,000 on the sale of the home? The answer, more often than not, is usually NO! Stick. To. You. Budget!
HIRE A PROFESSIONAL:
No, not just a Realtor, but someone in the "trades" that can help you get your flip done. Look, if you want to paint a few rooms to get the job done for cheaper, that's one thing. Or you want to do some of the landscaping work, I get it. But fixing roof tiles? Redoing some electrical work? That's a recipe for disaster. Hiring a professional will not only get the job done the RIGHT way, but they carry insurance, offer warranty on their work, and best of all, are good people to know! If you're planning on doing this more than just once, you want to build your contact list with a list of great professionals. Having a plumber, electrician, handyman, flooring installer, appliance provider, landscaper, etc on speed dial is a good way to build this Flip into a business. HIRE A PRO and be treated like a pro. Do it yourself, and more than likely, the flip will look like you cut corners.
NEVER OVER PAY:
This is the most important one, and that's why I saved it for the end of this Blog. Never pay more for a home than you should. This is rule #1, the cardinal rule, the be all/end all.
As soon as you over pay for a home, you're constantly looking for ways to get ahead of the game. You're going to cut corners in the budget, you're not going to finish the work that makes the home look like it should, or you are going to try and price it higher than it's actually worth. The home will sit, you'll lose money while it sits vacant, and will ultimately sell it for what it's worth anyway.
Have a number of what you're willing to pay, based on your budget, and based on the market, and be prepared to walk away if it gets too expensive. Let your competition overpay, and you can swoop in and buy the next deal that comes along. No one ever lost money by NOT buying a bad investment. If you have a team of pros, if you have a Realtor that's working for YOUR best interests, there will always be other deals. Most people become Floppers in this business when they overspend on the purchase. You're fighting an uphill battle that is very rarely won.
Do your analysis, have your budget tight, and know what you can expect to sell the home for. Derive your maximum price, and don't let the idea of the deal become more than it is. Another house is around the corner. Overpay today and lose out on more than just one deal. Avoid the Flop!
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