Fixing and flipping homes is a phenomenal way to turn a profit and add some funds to your investment accounts. Whether you’ve been fixing and flipping for years or you are merely thinking about trying your hand in the real estate market, the five tips below are sure to help you maximize your profits.
Make Sure You Understand the Costs
One of the biggest mistakes fix-and-flip investors tend to make – even after years of experience – is underestimating the costs involved in purchasing and truly fixing a home or other property. Think about things that could go wrong and what that might mean for your profitability or budget. What if you can’t sell the property as quickly as you’d hoped? What if the housing market cools off while you’re in the process of carrying out renovations? Following the 70% rule (discussed below) and having enough market knowledge to estimate costs accurately are vital.
Don’t Forget the 70% Rule
The 70% rule was specifically designed to protect you if the unexpected should occur. Essentially. It just means that your costs should never exceed 70% of the property’s after-repair value, or ARV. That 30% leeway is the cushion you need to protect you if there’s an issue with a sale, if the housing market slows down, or even if your run into a major (and expensive) issue during renovations.
Don’t Buy without Experts on Your Side
If you want your fix-and-flip endeavor to be profitable, you should wait until you have a team assembled to make your first move. There are numerous people you might want on your team, but there are three that almost every successful flipper has on his or her side: a real estate agent, a contractor (or network of contractors), and a lender who can get you the funding you need for your next project. Without these people on your team before you make your purchase, your flip may still happen – but it may take longer, and you may not profit as much.
Don’t Be Afraid to Say No
Every now and then, you will stumble across what could be the perfect home in the perfect location and you’ll have the very strong desire to buy that home, renovate it, and sell it for an amazing profit. However, when it comes to real estate, the money is more in the buying than the selling, so you’ll need to teach yourself to be incredibly choosy about the properties you buy. If a home seems to be perfect but the price just isn’t low enough to justify the 70% rule, don’t be afraid to say no. There will always be another home, and there will always be another opportunity.
Price Your Home Realistically
It isn’t uncommon for real estate investors to become emotionally attached to homes they’ve renovated, and this is especially true for those who are actively engaged with the renovations. Blood, sweat, and tears that bring a property back to life can make it difficult to let go, and this can sometimes cause investors to put a too-high price tag on their renovated homes. To stifle this, remember why you started – to make money that you can invest for your future and your family’s future. Get the home or property appraised when the renovations are complete, then consult with a real estate agent to help you come up with a fair price for both you and the buyer.
If you want a successful fix-and-flip experience, these are the things you need to keep in mind from start to finish with every single project. Know your costs, stay within the 70% rule, say no when you need to say no, and hire the right team. Then, when the hard work is done, price the home realistically, be happy for the buyer, and move on to the next project – after carefully investing your profits, of course.
