Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

The 5 Principles Of Home Flipping

Written by Than Merrill

A large majority of new investors get their start by rehabbing and flipping properties. It seems like all you have to do is turn on the TV any night to find a show dedicated to this niche of the market. More often than not, the flippers are presented with some sort of challenge that they must overcome, only to realize a profit by the end. While this is how the process is supposed to go, it doesn’t always go according to plan. If you are not careful, you can end up losing money. Regardless if you are a seasoned flipper or just breaking into the business, there are a few home flipping principles that can help your business succeed. Here are the top five that will help you become more successful:

1. Find the Right Property: Sounds obvious, right? There are many investors who opt for any property rather than the right property. The right property is one that you can get at the right price and needs just the right amount of work. It also means getting it in a location that has appeal and will hold its value. It can be argued that the neighborhood is more important than the physical property. You can change almost anything about a property, but you can’t change the location. It is also important that you take to time to know everything about the property itself. You need to be confident in the foundation, roof and other big ticket items that can be costly. Not every property will make a good rehab candidate.

2. Know Your Numbers: Numbers are the key to every successful rehab deal. You may have found a great property, but you need to walk away sometimes. Between the 70 percent rule and other popular formulas, it is easy to get confused. You should look at each property differently and weigh the risk versus the reward. What is universal on every property is that the numbers have to fall in line. This means knowing your holding costs, repairs costs, expenses and your estimated sales price. Not only do you need to know them inside and out, but you need to be realistic when plugging them in. Anyone can fill out a spreadsheet for a new property and make the numbers jump off the page. Doing this will not help you have a successful rehab. You need to error on the side of caution and consider the worst case scenario. Only then can you move forward.

3. Assemble a Good Team: Having a clear vision in your head is only good if you can put it into practice. To do this, you need to assemble a strong team. This starts with having a defined plan of what you need done, who you want to do it and when they can get it done. Everyone that works on your rehab is important. It doesn’t matter if they will only be at the house a few hours or if they will be there every day. One of your main jobs is to coordinate everyone and get the most out of them.

Of course, the budget is important for every project. However, quality is more important. Sometimes it is easy to forget that you are looking to maximize the return on your investment and not just finish the project. If the quality is poor, it will reduce the appeal of your property and ultimately the bottom line. If you have an established staff of people you have worked with for a while, you need to take care of them. Go by the job site and bring them coffee or lunch every now and then. Instead of constantly telling them what they did wrong, tell them what they are doing right. With any luck, your acknowledgement will motivate them to work even harder.

4. Follow Your Budget: There is no point in taking the time to make a budget if you aren’t going to stick to it. The numbers are only good if you use them to your advantage. To do this, you have to be willing to make some difficult decisions and cut some things out. There are times when it makes sense to spend money to make money, but not on every project. Some deals you get will require you to work tight. There is a difference between being thrifty and being cheap. Know where to spend your money, but if there is a less expensive way to achieve the same result you need to do it. The minute you go over your budget, there may be no turning back. The more you spend, the less return you will realize. If you go too overboard, you may end up working for much less than you thought.

5. Work Towards the Sale: You can produce the best property, but if you don’t work on selling it you will be disappointed in the results. The whole idea of a rehab is to improve an existing property enough that a buyer will take interest. Often times they don’t know, or don’t care, about all the wonderful work you may have done. It is easy to get carried away and list the property for more than the market dictates. This is the worst thing you can do. By pricing too high, you won’t have the necessary demand needed to maximize your return. There is some debate as to when you should start promoting your property, but if you decide to wait until it is completed, you should hit the ground running. Every day your rehab goes unsold will cost you money. Always think about the end buyer with everything you do, and constantly work towards getting your property sold quickly.

All it takes is one false step to undermine months of work on a rehab. There are plenty of steps to follow when flipping houses, but if you focus on these five you will be far more successful.