Steps to House Flipping Success
Learn and Prepare
Being a successful real estate investor/flipper requires knowledge of many different areas of expertise. To name a few:
- rehabilitation construction process and costs
- title transfer
- principles of real estate finance
- property valuation
- real estate marketing
- Corporation/partnership tax law (for end of year reconciliations)
Gaining an understanding about all of the physical, legal and financial aspects of the home rehab process will always be a worthwhile use of the investor's time. This knowledge will help to reduce unnecessary expense and increase profits.
Research is a house flipper's best friend. Proper due diligence should be performed by every real estate investor before each transaction. Analyze all of the costs involved, including purchase price, title, lender closing costs and the cost of the actual rehabilitation. The next step is calculating the subject property's true ARV (after repaired value). These steps will help to ensure that the forecasted profit goals are met.
Using Internet tools such as www.Zillow.com for property valuations, and a mortgage payment calculator (http://www.mortgagecalculator.org/ - mortgage calculator) is helpful. Combining sound knowledge with thorough due diligence will generally create positive results for the house flip. It is important to cover all aspects of the process. If you don't have the knowledge yourself, then get help! A professional can be an invaluable resource, especially to the beginner house flipper.
Find a Team
In fact, surround yourself with professionals. This is important for any successful investor. The amount of time and money saved by dealing with knowledgeable professionals cannot always be properly measured. Often, the professional can reduce costs and help to maintain schedules by using their own network. Working with a great team of professionals will make the entire house flip go more smoothly and efficiently.
A good construction contractor to consult on rehabilitation work is a necessary addition to any house flippers team. You'll also need the ability to find homes that need rehab. Usually, a realtor with access to REO inventory lists is a great place to start. The house flipper needs attorneys or title agents to facilitate the proper transfers of title. In addition, an investor who needs to finance a project needs a rehab lending contact who can handle pre-qualifications and credit issues. An accounting contact to handle and explain tax impacts and reconciliation is equally important.
Building a team that assists the rehabilitation and marketing process is important for both the short and long term success of all ventures. Having the proper network in place will insure the investor's ability to handle the inevitable issues and problems that arise from the house flipping process. Educating yourself as a flipper and investor and retaining the right professionals in your network will keep you on the path to success and profits.
Develop a Plan
Having a business plan that defines infrastructure, budget, goals, direction and accounting is extremely important. Any partnership or corporation must stay focused on market analysis, budget, profit goals and accounting, and house flipping is no different. Proper organizational structuring will help to make the venture successful and profitable. Find partners with different backgrounds as their differing perspectives will be invaluable.
Forming a corporation or partnership presents several tasks that investors must perform.
- First, develop the Corporation / Partnership Mission with the help of an attorney and/or accountant
- Develop a proper infra-structure and hierarchy to help follow through with your Mission
- Analyze market conditions to make sure your plan fits into the current market
- Establish detailed internal procedures to insure deadlines, goals and profit forecasts are met.
It's important to realize that the "Corporation / Partnership Mission" is an outline to success. Many major mortgage banks have just completed government performed foreclosure audits. The settlements reached will stream REO Properties into the market. There will always be challenges and unforeseen issues in most ventures, but having a good plan will increase your ability to succeed in this current market. A flipper with a properly structured network that stays disciplined in their approach will generally be the most successful.
Establishing your rehab project goals from the start will help you make smarter decisions later.
Finding a Property for the House Flip
There are a lot of opportunities available to the investor looking for a rehab project to flip.
- Hiring a real estate agent that specialized in REO in the area the investor is looking inJoining real estate investments groups that frequently refer properties to each other
- Aligning with a wholesaler who will feed the investor deals
- Finding both free and pay listings of properties on the internet
- Reviewing lists of upcoming foreclosure sales
- Or just plain driving around neighborhoods looking for properties that may be worthwhile projects.
All of these methods will be discussed in later chapters.
Buying a House as an Investment Property
The most important thing to remember when buying a house as an investment property is that you are buying a house for profit, and not for any other reason. Whether you are buying the house to flip, or to hold as a rental property, the numbers should tell the story. Not that the house is pretty, or in a good neighborhood.
Once you have identified a property that you are interested in, determine the economics of a deal. No matter how good the property looks, make sure you can make money at it. Have your exit strategy clear in your mind, and stick to your plan. This will also be further developed later.
Fix and Flip
Once you have bought the property, the next step is the rehab. Make sure your contractor is licensed and capable. Only work with someone you know personally, or about whom you have received excellent references. Be present at the project, don't leave it up to someone else to safeguard your property and your money.
Also, be careful about your choice of decor - make sure that walls, countertops, flooring, etc. are colors and styles that will appeal to the majority of buyers. Be careful not to inject your personal taste into a house that will be someone else's home! The property needs to appeal to the buyers, not the flipper.
Flipping the House
Once you have bought your property and finished the rehab, what are the best steps to getting it flipped? What type of realtor should be hired, should the property be staged? How should it be priced? Every one of these questions will impact the salability of the house, the time it takes to sell and the profitability of the project. It is imperative that once finished, the project be sold as quickly as possible. Will you know what to do? The answers will be more fully discussed in future articles.