Fixing and flipping can be a lucrative real estate investment. That being said, for first-timers, it can be difficult to know where to start.
The key to being a great real estate investor is being organized and doing all the essentials. This is the only way you’ll be successful. With that in mind, we put this “fix and flip checklist” together for those looking to take the plunge into fix and flip investing.
1. Determine your budget
The purpose of a fix and flip investment is of course to turn a profit.
To ensure you make money on your first fix and flip, you need to determine your budget. This should include your repair costs, closing costs, and down payment or interest rates (if you’re applying for financing).
In addition to this, it’s good to have a ‘rainy day fund’ for emergencies. You don’t have a crystal ball and you can’t be 100% sure how long it’ll take for the property to sell. Therefore, it’s important you don’t stretch yourself too thin.
2. Search the market for a ‘value-add’ property
It’s worthwhile to research your local real estate market and start in an area you are most familiar with. Here’s just a few questions you could ask yourself during your search:
- Which areas are up and coming?
- Which areas are out of your budget?
- Where are the best schools?
- Where is the demand?
As a general rule of thumb, the less money you’re looking to invest, the further away from the city center your property will be. Furthermore, if your fix and flip property is in a lower income area, it’s more likely you’ll be selling to investors who will act as landlords. This may result in lower profit margins.
3. Bring in a contractor for a walk-through of the property
A real estate agent’s opinion is all well and good, however, there’s no getting away from the fact that they can have ulterior motives. Also, they may be able to advise on market supply and demand, but they’re not usually an expert in construction. With this in mind, it may be worth hiring a well-recommended licensed contractor to do a quick walk-through of the property with you.
They can scope out the condition of the property and give you a clearer idea of the repairs and renovations required. In addition, they may be able to give you a ballpark figure on the time and budget needed. This information is vitally important when deciding whether to make an offer and the maximum offer you’re willing to make.
4. Make offers (and continue to make offers)
After you’ve determined how much you can invest and the repairs and renovations needed, you can start making offers.
This can be a frustrating and arduous experience; be prepared to make anywhere between 3-30 offers for properties.
However, real estate investment is a numbers game so don’t get discouraged when your twelfth offer is rejected. Furthermore, don’t go over your ceiling and always be prepared to walk away if it’s out of your price range.
5. Secure the financing for your fix and flip
So, you’ve finally had an offer accepted? Congratulations! It’s now time to finalize the financing for your fix and flip property (unless you’re paying with cash).
There are several financing routes you can go down. However, fix and flip hard money loans are the standard way to finance this type of investment. While they charge higher interest than traditional routes of financing, hard money loans have several key benefits:
- They are much faster than other methods (vital if you need to wrap up a deal quickly).
- They don’t require a credit check.
- Their terms are more flexible.
Whatever financing method you choose, make sure you have all the details of your property to hand in order to move the process along as fast as possible.
6. Get a Home Inspection
You need to make sure they’ll be no nasty surprises before you get the keys. A home inspection is important with all real estate investments, however, it’s critical with fix and flip properties.
After you receive your home inspection, sit down with your contractor to review whether there are new repairs needed or not. If there are new problems discovered by the home inspector, you’ll have to decide whether to request changes to your contract or to move forward with the new recommendations.
In addition to a home inspection, you may want to hire other professional inspectors too (plumber, structural, etc). The more thorough you are, the less likely you are to encounter problems and hidden costs down the road. Knowledge is power!
7. Prepare for renovation and put together a dream team
Following on from your walk-through with your contractor and a home inspection, it’s time to start planning for renovations.
The first step to this is to turn on the gas, electricity, and water within the property and put all the utility bills in your name. After this, you want to look into any permits you may be needing during the rehab process. Preparation is key!
In addition to being prepared, we recommend that you bring in an expert team to take on the tasks outside of your skill set. We understand the need to save money, but no investor can claim to be a skilled electrician, plumber, carpenter, and tiler all rolled into one. As a result, you need to put a renovation dream team together.
On with the renovation process. It’s recommended you visit the job site daily to review the contractors’ progress. As a result, you can catch quality control problems early on and keep everyone on budget and on schedule.
Moreover, you want to ensure that your renovations align with the draw schedule you’ve agreed with your contractor and lender. Not for the first time, the key to being successful during the renovation process is organization.
9. List the Property For Sale
Now for the main event – selling the house! Sign a listing agreement with a licensed realtor and use their insight to decide how much to sell for. Furthermore, it’s worth discussing with them how to stage the property. You don’t need to go overboard, but you’re far more likely to sell with furniture than without furniture.
You’ll also want to ensure that the pictures of your property are as professional as possible. The first contact most buyers will have with your property is online and your photos could make or break whether they come for a viewing or not.
10. Review Offers and Sell (and repeat!)
As the offers come in, sit down and discuss them with your realtor. You want to gauge how much potential buyers are offering, how serious they are, their proof of funds, and how long it’ll take for them to settle. Just like the negotiating you did at the start of your journey, don’t be afraid to come back with counter offers and to drive a hard bargain.
After you’ve successfully flipped your first property, you’ll probably breathe a sigh of relief and count your profits closely. However, the large ROI that can be made through fix and flip investments come with many moments of stress, excitement, learning and adapting, even for the most experienced flippers.
So, prepare yourself, gather your expert team and know that your hard money lenders at We Lend LLC can help you stay aligned with your goals, budgets and checklists too! Check back on this list and re-read to prepare yourself for each and every flip!