5 Strategies To Avoid Fix & Flip Pitfalls
Ah, the best laid plans…
You’ve researched your market, wisely selected your lender, and are getting ready for rehab. What could go wrong? Nothing, hopefully, but it’s still best to foresee any potential problems before becoming the rightful owner. From your initial property selection to the price you place on the finished fixer-upper, strategically map your fix and flip investment.
1. Select the property for what’s around it, as well as what’s on it.
The house you’ve found may be perfect in every way – right at your fixer-upper skillset, sitting on a decent sized lot, and with landscaping in need of little or no improvement. But unless it’s on a private island, you’re going to want to consider the environment in which it resides. How close is the nearest grocery store – or hospital? Is the school district decent? Does that nearby block seem a bit too sketchy? And what does the police blotter reveal about local crime? All of these are worth considering if your intent is to resell quickly. If you were planning to make it your home and ride out the neighborhood changes, these issues would be less pressing. But if you want to flip for a quick sale, be sure you’re investing in a property that’s on the way up, not waiting for the resurrection.
2. Build an accurate ARV (After Repair Value) estimate.
It’s tempting to gauge the resale value of your potential investment based upon those of the surrounding properties listed on realtor websites. But an accurate fix and flip plan will need more input. And a poorly thought out ARV estimate is capable of blowing up a budget in the midst of renovation. Be realistic: start by preparing a spreadsheet that covers all potential costs of repairs and overall renovation. Walk through the property with a general contractor in order to obtain a true estimate. Even if things are laid out for a tidy rehab, reserve 10-15% of your overall budget for fixes that reveal themselves once work has commenced. Assume that some unplanned cost will arise, don’t just hope that it won’t.
3. Make a timeline and stay the course.
Plan the work time schedule as precisely as the repair budget. Create another spreadsheet and include everything. While walking the property with the contractor, be sure to ask how long it takes to execute the repairs being noted. When you log these on your spreadsheet, include additional days. Not everything is going to be expediently completed, even if it really should. Don’t let this keep you from getting on with your fix and flip, but don’t rush into repairs before laying out a schedule. The last thing you want is to have to go back and redo work because it wasn’t planned properly.
4. Be smart when choosing your finance option.
Loans that are geared specifically toward fix and flip will come together much faster than traditional loans, allowing you to get started on renovations and be that much closer to your resale timeline. The approval process with these types of lenders will be easier, and the overall experience will build a relationship that establishes trust for future projects. Staff members seasoned in these types of investments will have answers that will help you keep on track.
5. Know when to quit.
While racing toward the renovation finish, keep a foot on the brake. If your heart is in the experience, your enthusiasm will be too. You’re going to see things that you could add to the property that will make it just “that” much better. But refrain from overspending. Because that added touch may not add much at all to the selling price. Learn what expenses yield the greatest returns and do those. Let the next owner dabble with sweet details. Besides, your infatuation may be the opposite of their taste. It’s too risky to get precious about a fix and flip property.
Remember, planning in advance will save you headaches when you’re in the heart of it. A fix and flip renovation is a time of focus. Come prepared and you’ll power through.