Thanks in part to the popularity of fix and flip TV shows and the mainstream glamorization of the real estate investing industry, property flipping is the most popular it has been in at least a decade. At Asset Based Lending, we review at least 100 potential fix and flip deals each month; while each deal is unique, some themes remain constant. If you’re thinking about getting started on a fix and flip project, learn from our experience and remember these four things:
Buy Right Or Don’t Buy At All
One of the first critical decisions an investor makes is how much money to offer the seller for the property. For newer investors, the excitement of getting started on a deal can sometimes create a tunnel vision effect that leads to a less than objective approach to calculating the proper bid amount. A good rule of thumb is to keep your total deal cost (purchase plus renovation) under 65% of the After Repair Value (ARV). If you’re exceeding that number and can’t find a way to reduce the renovation costs, you’re buying too high and aren’t giving yourself enough wiggle room. Don’t get too attached – the next deal is literally right around the corner.
Vet Your Contractor
Your general contractor has a direct impact on the success or failure of your investment. As such an important part of your team, take great care in the selection process. Interview at least three contractor candidates, and expect professionalism. If they don’t show up on time for your meeting, how can you expect them to complete your renovations on time? Most importantly, check references. Go beyond simply calling previous clients; visit previous projects that are similar to yours and make sure the quality of work meets your expectations.
Stage For Success
Your fix and flip is a business transaction. Just like the cost of the new kitchen appliances or interest on your loan, hiring a professional home staging service should be considered just another line item on your cost of doing business. This is an exercise in spending money to make money. A recent study from the National Association of Realtors concluded that staging properties increases their sale value by up to 17%, and helps them sell up to 2.5 times faster than non-staged properties. The primary reason behind this is that a professional stager will help you maximize your property’s strengths while mitigating weaknesses. The furnishings will appeal to the demand of your local market, and help potential buyers envision themselves living in the home – an absolute cornerstone of selling a house.
Don’t Fall In Love
After doing a fantastic job with your property, you will feel a well-deserved sense of accomplishment and pride. This is a good thing! But don’t let your love for your project interfere with making smart business decisions – particularly regarding when to sell. The longer you hold on to the property because you believe your work warrants a higher value, the more soft costs will accumulate. Carrying costs like monthly interest, insurance, and utilities will continue eating into your bottom line with every extra day. When you get an acceptable offer, sell the property, collect your profits, and put your money back to work on the next deal!
Author Bio: Eric Krattenstein’s extensive marketing experience began at a boutique marketing agency where he developed dozens of successful innovative marketing strategies for brands ranging from startups to Fortune 500s. Prior to joining Asset Based Lending early in 2016, Eric served as the US Chief Marketing Officer for a European enterprise software company where he spearheaded the company’s expansion into the United States and Canadian markets. In his current role, Eric leads ABL’s Sales and Marketing team that helps upwards of 40 to 50 real estate investors close hard money loans each month.