Fix it and flip it- we've all seen the shows and are amazed at the transformations of an ugly, dated house into a beautiful home everyone wants to live in. They make the rehab look easy, so how can you do it too?
Flipping houses is not for the faint at heart, it requires project management skills, budgeting and planning, in-depth property analysis, and speed of execution to complete the rehab on time and on budget. It would be beneficial to have an eye for design and construction background. However, it is not necessary if you have the right professionals on your team.
Let's break it down into two segments, before and after you buy the property.
Before you buy the property decide on your team of professionals and assess the real estate market. Then find a suitable property to flip, negotiate and write the contract, calculate the amount of repairs, secure financing, and close on the property.
After you close on the property create and source a materials list, schedule contractors or develop and manage your rehab crew, oversee inspections and quality control, and ensure the fix and flip project completes on time. Market and sell the property or list it with your favorite investor-friendly Realtor. Close the property and collect your check.
Buy at the right price consider the timing, type of rehab property, market appreciation, and forced appreciation. As sales prices increase, a built-in spread is created that allows house flippers to earn a profit. In these areas, minimal rehab is needed on the property- basically, a clean-up and scrub, address all safety issues, and add a little eye appeal. As you hold the fix it and flip it property and sales increase in that market, the appreciation automatically increases the value of your property.
Or you can create forced appreciation by rehabbing and adding value to a distressed property. Keeping in mind the demographics for that area and the specific types of amenities and styles those homeowners want.
Concentrate on SFR, single-family residential properties that have a good structure and deferred maintenance. These properties are perfect for a fix it and flip it because they'll require minimal repair and update. And you'll be able to rehab and place them on the market quickly.
Look for properties to flip in neighborhoods where buyer demand and home values are increasing, and other investors are rehabbing. These areas also need to have stable employment opportunities and schools with good ratings. Always buy the worst house in the best neighborhood. Avoid properties in need of extensive repairs, all war zones, and crime-filled neighborhoods.
Use online real estate lead software to search for fix it and flip it properties. Generate motivated seller leads with a website. It's your 24/7 salesperson in the field.
On social media connect with wholesalers, asset managers, and other investors. Announce to the world that you are a real estate investor and currently buying in that city or county.
Search the MLS and real estate platforms to find foreclosures and auctions.
Sift through the County courthouse public records to find landlords filing evictions, probates, divorce, and out-of-state owner leads.
On average, most flippers analyze 25 to 30 deals. Make appointments with 10-15 of these deals, make offers on 10, and close on 2-5. It's all about the numbers. And it's easy to see how lead generation is vital for finding fix it and flip it properties.
Calculate an offer to purchase the property based on comparable sales, repairs needed, holding time and expenses, closing costs, operational expense, profit margin, taxes, and the after repaired value (ARV).
Estimate repairs, materials, labor, permits, and include a 3% buffer of the repair total for hidden and unforeseeable issues.
Holding expenses include mortgage payments, property taxes, and insurance, utilities, and HOA fees.
Closing costs include both buying - loan origination fees, appraisal, title fees.
and selling - 6% Realtor commission, 1% inspections, 2-3% closing and title costs.
Operational and marketing costs both to find and sell - if you list the property with a Realtor, included in their commission are marketing costs.
Always remember to include your profit margin - because you want to get paid.
And taxes on the projected profits.
It's best and easiest to calculate all the numbers with software. Enter all the vital information and automatically receive the answers. You'll know immediately if your fix it and flip it property has the potential for profit. You can always get comparable sales and ARV from your Realtor but you'll still need to calculate the repairs, holding expenses, closing costs, purchase and sell price, your profit margin, and taxes.
It's a quick evaluation of the numbers to determine if the fix it and flip it deal has enough potential for a profit before you dive into deep analysis. 70% of a property's (ARV) After Repaired Value - repairs,expenses,holding and closing costs = the (MAO) Maximum Allowable Offer.
Accurately estimating the numbers is the key to every successful fix it and flip it. If you're an experienced flipper; as you walk through a property ask if you can take pics and videos. Send them to your contractor, and if need be schedule a complete inspection of the property with the homeowner. If you are new at flipping houses, definitely schedule a complete home inspection with the homeowner and have your contractor present.
Make a detailed list of needed repairs, materials, budgets, and timelines for completion. We highly a repair estimator software like Realeflow or Rehabvaluator. Both let you walk through and check off an itemized list of repairs, customizable rehab plans, create schedules and budgets. The software will automatically generate material costs and labor and match you with product SKUs. You can quickly send the repairs report file to everyone. These repair reports are helpful when financing your fix it and flip it property.
Only spend money on repairs that provide a return on investment (ROI) and that the neighborhood will support. You'll want to rehab the property to the same style and quality as the comparable sales and neighboring homes so, when you flip the property back on the market, you can get the highest price possible.
Always make sure the property will qualify for conventional financing. Check to see that all major systems work and eliminate safety and code issues.
Remodel or repurpose an existing space or add square footage. Be conscientious of the role color plays. Think about visual appeal and dressing the fix it and flip it property up, using color choices like grey, taupe, and white. Recoup 107% of money spent on interior paint and 55% on exterior paint.
Add flooring with textures like wood-look vinyl or stone-look tile and get 70-80% ROI.
Don't forget to create an outdoor living space for cooking or relaxing. Recoup 64% on Deck, patio, or porch addition. Add flowers or a new mailbox and house numbers.
Recoup 77% of money spent on kitchen repairs- New energy-efficient appliances and countertops. Add an island, storage space, and backsplash. Refinish cabinets. Update the faucet and light fixtures.
Recoup 64% bath- New sinks, tubs, showers, and toilets. Add storage space, a vanity, mirror, and lighting.
Recoup 117% on attic insulation. Recoup 65% on a roof replacement.
Increase curb appeal, add siding (68%) paint or replace the entry (66%)
garage doors (94%) and windows (69%).
Smart homes are in demand and can increase the SALES price by 3-5%. Add smart lights, thermostats, home security systems, doorbell cameras, smoke, carbon monoxide, and radon detectors. Some renovations and repairs qualify for federal or state green energy tax credits.
Contractors usually order the materials for the rehab, and they'll charge a premium for it. Save money, order the materials directly from the supplier or manufacturer, and ship right to the property.
Successful house flipping demands speed to reduce risk and secure your return on investment (ROI). The overall process of buying, fixing, and flipping a property takes an average of 180 days. However, it will only take 4-6 weeks to complete the bulk of the rehab. The remainder of that time consists of acquiring the property and selling it.
It's an asset-based loan which means, the property must qualify for the loan. Repairs needed, rehab and holding costs, a rehab plan with realistic timelines, budgets, and exit strategy will all determine the approval of the loan.
Lenders use a Loan to Value (LTV) rule:
The loan amount as a percentage, usually 70-90% of the property's projected (ARV) after repair value. In most cases, the investor will not need any money out of pocket because the loan covers the property's sales price and the cost of repairs. Also, most lenders only lend to LLCs, trusts, or company entities, not directly to investors who take title of the property in their name.
Hard money loans are short-term, 6-18 months loans to buy and rehab fix it and flip it properties. You'll pay monthly interest payments, and the principal balance amount will be due when the property sells or at the end of the loan, whichever comes first. Once you have completed a few flips and established a relationship with your lender ask for all payments, both accumulated interest, and principal to be paid at the end of the loan.
Be a power buyer apply online for a loan and get a preapproval before you start looking for a fix it and flip it property.
Price the property competitively so that it sells quickly. Your Realtor will provide comparable sales and a marketing plan, or you can get an appraisal. Each day you hold the property, profit decreases, and your risk increases. Vacant houses can develop maintenance problems that go unnoticed and they are targets for squatters.
Before buying the property gather your team together and get them
ready because as soon as you close, the clock starts ticking. The big
lesson I learned from all those home renovations shows is; the more
people working on the property the faster it's completed. The faster
you can flip the property back on the market the lower your holding costs
and the more money you'll be able to keep, so schedule the rehab to
start the day after closing.
For the buy and sell transactions, use an investor-friendly Realtor, title company, real estate attorney, insurance agent, and hard money lender.
For the rehab use contractors who work with investors and understand the need for speed without sacrificing quality. Always use licensed and insured contractors with crews and equipment, and issue them 1099s at the end of the year. You'll need a home inspector, painters, an electrician, plumber, a/c heat company, flooring installer, roofer, carpenter, clean-up crew, and landscaping and tree service. Your investor-friendly Realtor will have a list of investor-friendly contractors or ask other investors whom they are using.
You'll also need a hands-on Rehab Project manager to orchestrate the rehab, oversee the details, eliminate the obstacles and complete the rehab on time and on budget. Use project management software to create schedules, manage contractors, track expenses, budgets, and timelines for inspections and completion.
Flipping houses is a lot of work and the most effective and dangerous house flippers are armed with a phone,
software, and connections to local contractors and real estate service