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For real estate investors, fix and flip projects are a great opportunity to make a solid return in a relatively short time period. Most investors aim to complete their flips in less than 6 months to minimize holding costs, but this also means that they’ll be very busy during that time. It helps to have a clear understanding of the fix and flip method so you can know what to look for and which mistakes to avoid with your project. It also helps to understand the various strategies home flippers employ to help maximize their returns and ensure a smooth process. Interested in learning more? Continue reading for 8 proven methods to boost the returns of your next fix and flip investment.
#1: Thorough Market Research
The first step in any successful real estate venture is an appropriate amount of due diligence. For a fix and flip project, this means taking the time to research different markets and properties in order to find the most lucrative opportunities. Location is incredibly important in real estate since it directly affects how much demand you can expect for a home. Start by comparing a number of markets you would be comfortable investing in and taking a look at key statistics like average sale price, population growth, and the health of the job market. These are often the indicators of a high-demand market, which tells you that the area would be good for an investment.
#2: Strategic Property Selection
Along with taking the time to research various markets, you will want to closely examine the properties you are considering before making any purchases. The best homes to flip will be older or neglected properties located in great neighborhoods, this way they can grow to match the value of surrounding homes. However, you also need to be careful not to choose a home that is beyond reasonable repair. Certain fixes such as flood damage or a cracking foundation can be very costly and will eliminate your profit margin. You should strongly consider hiring a property inspector to uncover these issues, and they will also be able to give you a good estimate of the repairs a home needs.
#3: Accurate Budgeting and Cost Estimation
Speaking of estimates, you will want to ensure that you are obtaining accurate numbers for both the acquisition and repair costs of a property, as this will help you select the most profitable investment. Be sure to dedicate an appropriate amount of your budget to renovations, and also consider leaving an additional sum to cover any unexpected costs that may arise. The 70% rule is the rule of thumb investors use when searching for profitable home flipping opportunities. It states that you should not pay more than 70% of a homes after-repair value (ARV) minus renovation costs. This helps ensure that the project you’re investing in has a healthy profit margin and is well worth your time and effort.
#4: Quality Renovations and Upgrades
The key to a stellar flip is choosing renovations that make the home stand out to buyers, increasing demand for the property and ultimately your return on investment. This typically means focusing on renovations in high traffic areas like the kitchen, living room, and bathrooms. These upgrades have the most impact since these rooms tend to show their age the most, and updating them will add significant value to the home. You may even be able to incorporate popular modern trends like open concept design. However, be sure not to neglect the home’s exterior as this is often the first thing buyers will see when browsing properties, and good curb appeal can leave a lasting impression.
#5: Efficient Project Management
The level of quality you can expect from your project will boil down to how well you can manage the work over time. You should aim to stay involved by keeping a close tab on progress and by staying in touch with contractors to quickly work around delays that are bound to come up. As mentioned, investors aim to complete their flips quickly so as to reduce holding costs. Anything you can do to minimize delays and keep the project on track will help you maximize your return.
#6: Strategic Pricing and Marketing
When the time comes to sell your property, there are various techniques you can employ to boost demand for the home. Pricing is an important factor since you want to ensure a good return but also want to entice buyers. You can take a look at comparable home sales in the same area as your property to get a better idea of an appropriate price. For effective marketing, you will want to craft a detailed listing that covers all the property basics, but also be sure to take high quality photos of the home’s best features. You should also consider professional staging to showcase the home’s potential and catch the attention of more buyers.
#7: Negotiation and Closing
If you want to make the most of the sale, you will have to get familiar with negotiations during the closing process. Naturally you will want to remain firm on pricing since you’ll be trying to maximize your return, but you should still try and be accommodating with other requests so long as it helps you close the deal. For example, certain buyers may need time to sell their current home, so they will put in an offer that’s contingent on that sale. Offering to pay closing costs is also a great way to entice buyers if they are on the fence about purchasing your home.
#8: Tax Planning and Financial Management
The last strategy we want to cover involves managing your taxes and finances effectively so you can keep the most of your return. The best way to do this is by working with an accountant or other tax professional that will help you maximize your deductions. Many of the expenses associated with the project as well as running a real estate business can be written off. You should also consider your long-term goals; it might be more beneficial to rent your property out after renovating it rather than flipping it for short-term profit.
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.