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Fix and flip investing, also known as home flipping or rehabbing is a consistent way to generate great returns with real estate. This strategy relies on finding neglected or undervalued properties and renovating them to increase their value before reselling for a profit. There are a few key aspects of home flipping you will need to take into consideration if you want to have a successful investment. From careful planning to strategic management and marketing, there are many decisions you’ll need to make that can have an impact on your returns. Continue reading as we share six tips that can help you make the most of your next fix and flip investment.
Tip #1: Research and Planning
Every successful real estate deal starts with careful planning, and waiting for the right opportunity to appear. This often means performing a detailed market analysis of the area you’re looking to invest in, including obtaining statistics that can help you better understand demand. For example, if the average sale price of a home is trending upwards in a particular market, this can tell you it’s a good place for an investment.
The ideal property for a fix and flip will be a smaller or less expensive home in a desirable neighborhood. With some strategic renovations, the resale value of the property can grow to match that of surrounding homes. And since the property is in a good location, it will still generate consistent demand. By taking the time to wait for these opportunities, you can help maximize your project’s returns.
Tip #2: Proper Financial Preparation
The next, vital step to take care of is ensuring you have the appropriate amount of funding to complete the project. Be sure to take all costs into account including purchase, renovation, and holding costs, as well as marketing/closing expenses. While estimating your budget, it is recommended to include a buffer for covering unexpected costs that may arise. A good rule of thumb is 10% on top of your initial budget estimates.
You have a few options to choose from when it comes to financing a fix and flip investment. While a traditional mortgage may be able to cover your purchase, many bank loans will not finance renovations, and may view your investment as too risky if the property is in poor shape. Private loans are often more suitable for fix and flip investments since they are asset based, short-term in nature, and also include funds for covering renovation expenses.
Tip #3: Renovating for Profit
As for renovations, it’s important to choose strategic upgrades that will maximize your return on investment. By focusing on high traffic areas like the kitchen, living room, and bathrooms you can add a lot of value to a property at an efficient cost. Being involved in the renovation process is crucial to making sure things get done on time and under budget. If you’re hiring contractors for this step, you can ensure they perform quality work by requesting a portfolio of past work, or by asking for references from family and friends. During this step, there’s a need to strike a balance between quality work and investing so much into the project that it starts to diminish your returns.
Tip #4: Time Management
As mentioned, staying involved in the project is key to ensuring it gets done in a timely manner. This is particularly important for fix and flip investing since the longer you hold on to a property, the more you pay in holding costs interest, taxes, and utilities. By staying on top of things, you are able to handle delays quickly and keep the project on track. This is also why it’s important to plan your project carefully and set a realistic timeline that can accommodate these unexpected delays.
Tip #5: Marketing the Sale
Effective marketing can help you maximize demand for a property and ultimately boost your final sale price. This starts with the property itself and performing quality upgrades that you can highlight in your listing with good photos. You can use staging to showcase the property’s potential to buyers, and can even do this virtually to save some money. In the listing description, you should focus on the key selling points that make your property stand out from other homes.
When it does come time to sell, you’ll want to make sure that you’re pricing your property effectively. You will need to determine a fair balance between a good return and being competitively priced in order to sell quickly. Don’t be afraid to negotiate with buyers in order to facilitate a sale, but don’t make concessions that will eat into your profits and make the deal less worthwhile.
Tip #6: Managing Risk
The last area we want to focus on is some general advice on managing risk with a fix and flip investment. We already mentioned how important it is to plan and budget carefully, including having extra funds to cover unexpected costs. It is also highly recommended to create a detailed plan with line items for each renovation and an accurate schedule with completion dates. This lets you identify exactly when and where you are running into issues, allowing you to deal with them in a timely manner. Combining these strategies will help you reduce the impact of delays and other unforeseen circumstances, and increase the likelihood of your project’s success.
There may also be a need for a contingency plan when it comes to your exit strategy. If you aren’t able to sell the property in a timely manner, or market conditions change and make flipping less financially viable, you should consider pivoting to a rental strategy. This can help cover monthly holding costs and even recover some of your initial investment, giving you time to regroup and execute your strategy effectively.
RCN Capital
The easiest way to save on your next investment is to obtain financing from a real estate lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you are looking to finance a home flip, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.