Despite what HGTV has you believe, flipping houses is more hustle than glamor. Investing in fix-and-flip real estate can be incredibly rewarding but it’s not without risks. Before you get a fix-and-flip loan, do your due diligence.
If you take the right steps, house flipping can be quite lucrative, too. In the first quarter of 2019, house flippers saw an average ROI of 38.7 percent, according to ATTOM Data Solutions. It can be tempting to dive headfirst into the world of house flipping, but it’s critical you arm yourself with invaluable advice from experienced real estate investors.
To help, Seek Business Capital spoke with house flipping connoisseurs and real estate professionals to share their best pro tips for flipping houses with maximum profits. These experts have learned a thing or two about the industry in their time so take their advice and apply it to your next fix-and-flip project.
Here are 15 house flipping tips from pros you should know:
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1. Buffer Your Budget
“When flipping houses it is important to be conservative with your rehab budget, especially when you are a beginner investor,” said Ryan Substad, owner of Northwest Property Solutions, who sold a flipped property earlier this year and has two more in the works. “Always leave a little buffer in your budget for unexpected things that might come up. When you start opening up walls or doing demo to the property, there are bound to be extra things that need to be fixed as well as the little things you originally forgot to put in your budget. Also, the thing many people forget to set some money aside for are the items that come up on the buyer’s inspection report that they want fixed before closing. If you make sure you have some buffer room in your budget and are conservative with your numbers, you’ll be well on your way to making a nice profit.”
2. Never, Ever Overpay
“Paying too much for a fix and flip property is one of the most damaging mistakes that real estate investors can make,” said Kuba Fietkiewicz, fix and flip investor and founder of REIkit, house-flipping software. “If you get your value right, then you can get a whole lot of other things wrong and still make money. However, the reverse is rarely true. If you get the value wrong, it doesn’t matter what you do, you’re likely going to lose money. Although doing due diligence on a property is not as fun as swinging a hammer, analyzing the numbers for each deal carefully is a crucial first step that should not be rushed. This starts with calculating an accurate ‘after repair value,’ or the price you could sell the house for after you are done fixing it up. The difference between the deal price and the ARV must be large enough to cover expenses and also make a profit. Once you find a property worth pursuing, you can confidently put in an offer and start making your house flipping dreams a reality.”
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3. Ditch Zillow
“If you live in a competitive area in a hot market, you can pretty much forget about finding an amazing flip deal on the [multiple listing service] or on MLS-tethered sites such as Zillow or Redfin,” said Logan Allec, CPA and owner of Money Done Right. “Believe me, if a good deal were to be found on Zillow or Redfin, somebody else would likely have already purchased it. This may not be true in all markets, but in most competitive markets, you won’t find great flip deals where everybody else is looking. So if you can’t pull up Redfin to find your first flip, how exactly do you find a deal? Well, you have to get creative. Some people use wholesalers (people who are experts in finding real estate deals for cash buyers) and others use the internet. But how did I find my first flip deal that netted me over $20,000 as a rookie? I used good old direct mail marketing. That’s right. I sent out letters and postcards to absentee landlords in my target market. Yes, this took an initial investment of about $1,500. Yes, it was a risk. But it paid off. The reality is that amazing flip deals — especially in most real estate markets around the country in this particular moment in time — won’t fall into your lap. You are going to have to put in either time or money (probably both) to find your first flip deal.”
4. Market to Sellers to Find the Best Properties
“We have been flipping in New York since 2013, and what you don’t see on HGTV is the struggle to buy properties cheap enough to renovate and sell at a profit,” said Michael Pinter, principal of LMPK Properties. “The number one tip I would give to beginners is that you need to start and continue marketing to motivated sellers to find properties to flip. We use direct mail to targeted lists of people that might want to sell, Pay Per Click (PPC) Google AdWords advertising and a variety of other methods to find the properties that we flip. On TV, you see the easy part, which is what happens after you buy the house.”
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5. Stay Objective
“It is important to look at any deal objectively before you get too excited about a new deal,” said Jamell Givens, a real estate investor with Globalized Realty Group, who has completed more than 150 flips in the last seven years. “When evaluating a deal, you need to be sure to look at both the best and worst case scenarios so you don’t purchase properties with too much downside risk. Even after having done 150+ flips, projects often run into unexpected costs — over budget construction expenses, unexpected structural issues, longer times on [the] market, etc., so it is very important to make sure you are still profitable in a scenario where things don’t go as smoothly as planned.”
6. Choose the Right Neighborhood
“When searching for a house to flip, buy an old house in a highly respected or up-and-coming neighborhood,” said Tonya Bruin, CEO of To Do-Done, a handyman service company that specializes in home renovations and fixer-uppers. “You can figure out the lay of the market by talking to a real estate professional or completing your own research. The homes in these neighborhoods will already price above typical selling value, so when you completely renovate them with new appliances and structural repairs, they will sell for even more.”
7. Move Quickly and Always Measure
“Don’t spend too much time getting quotes,” said Uriah Dortch, professional home buyer and broker with The Inspiring Investment, which completes about 22 flips a year. “This seems like a big no-no, but previously I would spend weeks trying to [get] the infamous three quotes and it would end up stopping the job. With house flipping, the longer the hold the more money it costs you in interest payments for the loan. So the quicker you get it done, the more money you make. Learn how much things cost on a square foot basis [such as] labor and materials. That way you can estimate costs no matter the house. Measure the house! I’ve had so many houses that were 100 to 200 sq. ft. bigger than Zillow and tax records showed. This equals huge profits if you are selling at $100+ per foot.”
8. Price Down, Negotiate Up
“My best tip for maximum profits on a flip house might sound a little crazy but it works,” said Kris Lippi, real estate broker and owner of ISoldMyHouse.com. “When your project is complete and you put it up for sale, consider pricing your house slightly lower than market value. Everyone loves a nice new flip house and buyers know the real estate market well, so when they see a new flip hit the market priced with what looks like a great deal, their emotions will take over and create a sense of urgency. I guarantee this tactic will get you multiple offers that you can negotiate with and end up selling your house for more money and faster than if you priced it high to begin with.”
9. Find Properties Via Wholesalers
“When you are purchasing a house to flip, don’t only rely on realtors to find properties to purchase,” said Shawn Breyer of Breyer Home Buyers. “Another option to find deals is to sign up to be on a wholesaler’s email list. A wholesaler is someone who sends out marketing to find properties that need repairs at discounts. These properties will be anywhere from 40 percent to 60 percent of the ‘after repair value’ (ARV). To find wholesalers, search for ‘We Buy Houses [your city]’ and you’ll find websites of these companies. You can reach out to them by calling or filling out the ‘Contact Us’ forms on their sites and ask to be added to their cash buyer list. You will them be notified when they find discounted houses.”
10. Be Realistic With Your Renovations
“Before successfully flipping your property, it’s important to asses the price of the home and the way that price can be increased,” said Bryan Stoddard, who runs Homewares Insider, a publication that covers home topics. “When assessing the realistic price, it’s especially important not to overblow the final price, even with renovations in sight. On the other hand, when you’ve assessed the state of the property and decided to renovate, the option of increasing price comes naturally. When doing these kinds of renovations, it’s important to cover the basics: getting a new coat of paint, refreshing the flooring or installing better windows. If that’s not necessary, it’s worth investing your money in trends. There’s a wide offering of new and trendy technology you can use. Make sure to stay realistic, though. If your goal is to flip the house as fast as you can, don’t bother with huge renovations and potential money drains. For inexperienced house-flippers, I’d recommend to start small and build up from there.”
11. Seek Undesirable Houses
“When buying, look for houses that have a solid foundation and structure, but have ‘undesirable’ features: ugly paint, old windows, unkept lawns,” said Luke Babich, a licensed realtor, real estate investor and CSO of Clever, a company that pairs home buyers and sellers with real estate agents. “These details are easy to fix but can lower the price. Avoid properties with major problems such as a leaky roof or plumbing systems in need of repair. Inspect the house in-person to avoid finding bad surprises, and consider bringing an agent or experienced tradesman with you to identify possible areas of concern.”
12. Know Your Prices
“Overpaying for contractors/work as well as material is another one that can quickly turn a flip to a flop, so make sure you know your prices for materials as well as what a job costs both on the total project budget perspective as well as on an individual trade-by-trade basis,” said Lukasz Kukwa, real estate advisor with Coldwell Banker Residential Brokerage. “Make sure you do not over develop or renovate for the area in which you are selling as well as the buyer pool you will be selling to, many times beginner investors invest funds into the wrong places such as on higher-end materials or products that will not yield them a return as their buyer pool in that price point will not pay more for those choices and/or the comps in the area you are renovating in won’t cover the extra money you put out for these items and work.”
13. Get on Local Auction Email Lists
“Get on the newsletter email list of your local city governments auction list. A lot of landholding governmental agencies like Caltrans in California hold monthly auctions for homes on their land,” said James Taylor, realtor and owner at Vegas Property Hotline. “If you are not on that list, you are missing out on great fixer upper deals where you can make a pretty penny. Start by calling up your city hall clerk and asking them which department is in charge of auctioning homes on public land.”
14. Have an Exit Strategy
“Always have at least two exit strategies and don’t dawdle choosing which one to execute,” said Robert Taylor, of The Real Estate Solutions Guy, who has rehabbed houses for nearly 15 years. “If you buy a house and find yourself significantly in over your head, resell it and move on quickly — even if it means selling at a loss. Every experienced investor has had to do this. Holding on to a bad deal just costs you more money. The longer you hold on to a skunk, the more you’re going to smell like him. We’ve bought houses that after I purchased them, I realized that the numbers were just too thin. We turned around and resold the property as-is for more than we would have made if we had spent the money to fix it up and flip it.”
15. Be Better Than the Competition — And Don’t Forget Uncle Sam
“Do better work [than] the competition but focus more on paying for better quality work and things that will make the finished product better. You don’t have to overspend but understand design, trends and to put the two together to make your product look superior,” said Kukwa. “Finally, budget for closing costs such as realty transfer tax and all associated closing costs that come with selling a home as well as for taxes after the project is complete; although he may not be on the LLC, Uncle Sam is always a partner.”
The Bottom Line
Flipping houses has its challenges, from getting a fix and flip loan to finding the right property. But if you can make it from start to finish, the process can be incredibly rewarding — both personally and financially. That said, it’s important to remember that you don’t need to reinvent the wheel. Just because you’re flipping your first house doesn’t mean it hasn’t been done before, so use the resources available to you to learn from other peoples’ mistakes. Read books, check out blogs, talk to experienced flippers — no matter how you get your information, researching the topic can save you a headache and potentially even thousands of dollars.
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