Buying distressed properties to flip for a profit has become a booming business. Many people quit their day jobs to opt for a life where they can flip and get rich. If you want to branch into the market, you may have many questions about how to do things properly. Your flip can be a success or a flop, so here are some tips to consider.
Set a Budget
Before you even start browsing listings for available properties, be aware of your financial status. Investing in homes to flip is no different than taking a chance with the stock market. It’s never a wise choice to overextend your credit on the contingency that you will make a profit. Instead, figure a budget that includes the maximum amount you can reasonably afford. You will also need to figure in the taxes, closing costs, realtor fees, as well as other applicable expenses. You may need to fine-tune your budget as the project progresses. Play it safe and run all financial agreements and co-investor legalities through an experienced real estate lawyer.
Keep a Cushion for Unforeseen Expenses
Don’t forget to add a little wiggle room to your budget. If you have ever remodeled a home, you know that things rarely go as planned as there are often unpleasant surprises. While a portion of the budget will cover these unexpected expenses, a complicated matter can run into thousands of dollars more. If you should have to replace the HVAC unit, the plumbing or electrical, then it’s a major investment. Many foreclosure auctions are sold “as is,” and potential buyers must bid on properties they have not inspected. Even if you buy a home and have it inspected, there is always the chance of an unexpected issue or permit modification. Budget as much as you can safely afford for these incidentals as they can make or break your flip.
Factor in Cost and Delays for Permits/Inspections
As your experience and research have indicated, all the construction in your investment property must be inspected and permitted by local authorities. While it is your project manager’s and contractor’s job to facilitate these inspections, you are ultimately responsible. When you drafted your budget, you allocated funds to pay for the inspection and permit fees. These vary by county and municipal regulations and are often changed. Frequently, you must be on a waiting list for a local inspector to visit. If something needs to be modified to bring it up to code, you may have more delays in your schedule. These are normal frustrations of a home flipper, and delays are inevitable.
Find the Right House to Flip
Finding a property to flip is rarely as easy as it seems on the reality television shows. One of your best resources is foreclosure listings in your counties. These properties will usually be sold by sheriff’s auction and often sell well below market value. Keep in mind that they are often bought sight unseen, which means they can be a disaster on the inside. You might also network with family, friends, and coworkers about local properties for sale. Sometimes, you may get a better deal from a private seller than from a real estate agency. Go online and research local foreclosures and other bargain properties. Be cautious of purchasing so-called “government” foreclosure lists, because many are scams.
Network With Contractors
At this point, you’ve already purchased your first investment property. Choosing the right contractors to remodel your home takes time and diligent research. Your best option is to network with contractors in your area and ask a lot of questions. Family and friends can often recommend quality contractors who have worked for them. Make sure you ask for professional references and their portfolio. Check for valid licenses, certifications, bonding, and insurance coverage to protect your investment. Reputable contractors welcome these inquiries and will provide estimates in writing.
If you are not the project manager, you may hire a qualified person to manage the workers. Allow your real estate attorney to review the estimates and help with any price negotiations. Keep in constant communication with your contractor to avoid costly mistakes or misunderstandings.
Keep a Schedule and Stay Organized
Schedule a meeting with your project manager and contractors to create a master project list. Years of experience will allow the contractors to provide an estimated time frame for each project. After all these times are combined, work together to draft a daily work schedule and the expected finishing date. Don’t forget to add a little wiggle room. Much of your schedule’s success depends on everyone staying organized. When all workers are punctual and utilize good time management, projects can often be completed as planned. Your contractors should follow safety measures and store tools and equipment efficiently. It’s good to keep in mind that having places to dump your scrap creates a safe space in the construction zone.
Realize There Will Be Delays
No matter how hard you try to plan and organize, any human endeavor can have unexpected delays. While you try to schedule outdoor construction during seasonable times, the weather does not always cooperate. Sometimes, construction equipment fails, or some of your contractor supplies were back-ordered. Sometimes, sub-contractors are short on manpower or inspectors must reschedule their appointments. What if the inspector requires changes in your plan? Delays are not only possible but are inevitable. Because of these common issues, your schedule must have room for modification.
Get a Real Estate Agent on Board to Help Sell the Home
Now that your investment property is remodeled and is ready to list, you should consider hiring a real estate agent for the sale. Work with your attorney to draft an agreement that outlines the realtor’s responsibilities and fees. An experienced agent will compile comparable home listings in your area to suggest a competitive selling price for your property.
Lastly, remember that potential buyers can visualize themselves better in a tastefully furnished home. You may consider the extra cost of hiring a professional home stager to furnish your property for tours and open house visits temporarily. After you sell your home, will you bank the profits or search for another house to flip? Do you think you have what it takes to make a flip a success?