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Home flipping is a very popular real estate strategy since it provides investors with a great return in a relatively short period of time. It also can generate significant returns when you take the time to conduct your flip with due diligence. Choosing a good property, in a great location, and with the right upgrades, can lead to a very profitable flip. There are also a few strategies you can use to maximize the return on this type of investment. Continue reading as we share some tips for making the most of your next fix & flip project.
Determining the ROI of a project
In order to get a good understanding of what affects your ROI you should familiarize yourself with the factors that can influence it. First and foremost, know that the average ROI of a fix & flip lies between 20 and 50% after all expenses have been considered. If an investment is projected to generate a greater return than this, it is also likely going to involve more risk on your end.
The main factors that will come into play when flipping are the location of the property, as well as the property type, and amenities it offers. Homes that are in good locations are sure to fetch a higher price when it comes time to sell, and the best homes to flip will be neglected properties that reside in great neighborhoods. Also, the closer a home is to things like shopping centers, restaurants, and entertainment, the higher in demand it will be. Finally, properties that have more bedrooms and bathrooms will be in higher demand, so finding a large property to fix up can be very lucrative.
You can use the 70% rule when deciding if a property will make for a good home flip. The rule states that for flipping, you should never pay more than 70% of a home’s ARV (after-repair value) minus expenses. This helps ensure your deal has enough of a profit margin built into it that makes it worth your time and effort. Once you have accurate estimates for these numbers, you can calculate your ROI and move forward with your project.
Key Strategies for Maximizing ROI
A. Property Selection
Selecting the right property is crucial to a successful fix & flip. We already discussed how important location is when purchasing a property, but you need to consider the condition of the property as well. There’s no point in flipping a property that’s already in great shape, but you also don’t want to invest in a property that needs an extensive amount of work. Certain repairs, like cracks in the foundation, or flood restoration, can be very costly and don’t add any extra value to the home. You’re better of avoiding these homes as they won’t generate a good return on investment.
B. Cost Management
Staying on top of your finances as you go through the project is just as important as the work that you’ll be doing. You will need to have your budget detailed out beforehand, so that you can stay on track as work gets completed. A great way to ensure your renovations don’t get out of hand is by focusing on the ones that add the most resale value to the home. Upgrades to the kitchen, bathrooms, and exterior of the property tend to add lots of value while costing you relatively little.
C. Renovation Tips
The renovations you choose to perform will have a big impact on the return of your fix & flip. Ideally you should look to perform upgrades that add lots of value to the home, while costing you much less to perform. However, you will also want to make sure your renovations have mass appeal, so as not to put off any potential buyers when it comes time to sell. That means sticking to a neutral color palette for the rooms, and avoiding any eccentric decorations. You want to present buyers with what’s essentially a blank slate, so that they can easily picture themselves living in the home.
D. Pricing Strategies
The price you set your property at will directly affect the level of demand you will see for it. You run the risk of pricing buyers out with a value that’s too high, but you will also be looking to get the most out of the sale to maximize your return. It’s a balancing act where having local market knowledge is essential, as you can compare your property to similar homes in the area to find a competitive price. Working closely with your real estate agent to fine tune pricing can also be very beneficial.
E. Staging and Presentation
Staging is another strategy that can help boost your resale value when done correctly. Staging is the act of arranging furniture and décor in an enticing way to help showcase the home’s best features, and help buyers envision themselves in the property. A well staged home is sure to make a good first impression on buyers, and will often lead to a better sale price. You may also want to consider hiring a professional stager and/or photographer to help capture the property in the best way possible.
F. Efficient Project Management
Time is money, especially with a real estate deal, so effectively managing your project will play a big role in its success. Delays can incur more in holding costs, and a changing market can also affect your final sale price. For flipping, project management often means working closely with contractors to avoid any delays, and also having a good overview of progress to ensure you stay on schedule. There are also tools you can use to help stay on top of things, such as project management software, which helps you track every aspect of the project to ensure things are getting done on time and within budget.
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. RCN Capital has competitive loan options available if you are looking to finance a home flip.Connect with us todayto discuss your next real estate investment.