Most unexpected issues in fix & flips come during the rehab! Here’s how to tackle those before they even become a problem.
The clock is always ticking when flipping properties, and time is money. But did you ever stop to think just how much money those extra days here and there are costing you?
$50 every day. Yep, that’s what the average real estate investor pays every day in interest on their rehab loans. Now factor in all the additional overhead costs that come along with holding onto a property like landscaping, utilities, etc., and you’ll understand why I say that every hour that your property sits unsold counts against your profitability.
Luckily, there are ways you can shave off days, or even weeks, in your flipping schedule by following three simple but effective steps. What are they? Glad you asked; let’s dive in.
Tip 1: Itemize Every Repair
Why? Every nail and stick of lumber costs money so you need to know exactly what you’re up against and how much you’ll need to spend to flip your property for a profit. So when you’re drafting your initial wishlist for repairs that you’d like to see done on the house, you need to itemize and sub-itemize everything.
To give you an example: many investors, both new and experienced, will make the mistake of listing something like flooring as just “flooring” in their repair budgets and bid requests, lumping the entire repair category together.
Instead, what they should do is sub-itemize each flooring repair into as much detail as possible, to the point that it feels like overkill. Something like “flooring” should be split up into:
Then for bonus points, itemize those things down by room, and you’ll have a complete overview of just how much that “flooring” is really going to cost in time, materials, and service fees.
How Does It Save Me Time? This tip saves more time than any other tip I could give, even though it seems like a lot of work. Here are two critical ways doing the itemization work now pays off later:
First, being thorough in detailing the work that your contractors need to bid on often uncovers hard-to-see expenses that can help you avoid a bad deal from the get-go. In real estate investing, there’s no better time saver than that.
Secondly, having detailed itemized scopes of work saves you time when it comes to dealing with the draw requests on your loan. Basically, you’ll be able to pay individual contractors as they complete each portion of the job if you chunk the work out instead of lumping everything together (Do you now see why “flooring” just isn’t good enough?).
Also, if you need to fire a lousy contractor halfway through the project or if they bail on you, you can pay them for the portion of work completed and easily hire another without losing money or time backtracking and trying to figure out where they left off.
Tip 2: Always Get At Least Two Contractor Bids
Why? I highly recommend getting bids from at least two separate contractors on every repair item. This tip goes for every investor, no matter if they’re just starting on their first flip or are well into their 50th. In fact, I still stick to this rule, and I’ve been doing this since I was 20!
Your bids should follow your itemized list that was done before. Don’t accept a general proposal, especially if you want to get a hard money loan. Your lender will most likely want an itemized scope of work before they fund you, so don’t skimp on this.
How Does It Save Me Time? Remember that hypothetical scenario above where you had to fire a lousy contractor? Now you have a backup contractor. Enough said.
Plus, if you sub-itemized your repairs when you got the bids, then your backup contractor will even have a proposal ready for precisely the portion of the repair that remains for that repair category.
Tip 3: Plan the Entire Rehab First
Why? Real estate is a timed game where the longer you have to sit with your property, the less money you’ll make, thanks to overhead costs. However, if you’re able to plan your work out before closing, then you’ll save so much time!
If you only start your planning during due diligence, then you’ll be playing catch-up instead of getting ahead. Your initial and subsequent walkthroughs should be used to assess the property and start actively planning out the work you’ll want to do.
How Does It Save Me Time? Honestly, this one is kind of a no-brainer, but both new and experienced investors make this mistake all the time. Diving into the repair phase of your flip without extensive planning is guaranteed to cause you setbacks.
New investors skip it because they don’t know any better, and experienced investors mistakenly believe that their experience can compensate for unforeseen circumstances like market fluctuations, material cost increases, and all those other fun little things that just spring up no matter how much you don’t want them to.
But look, planning ahead won’t necessarily guarantee that you can avoid every bump in the road. That said, you’ll be in a better place to bounce back from the unexpected if you have a plan for everything else.
If you want to cut down your holding time as much as possible then it’s simple: Plan it before you fix it — every time.
Fix & flips are the bread and butter of real estate investing, but too much time gets wasted unnecessarily, even on something as standard as house flipping. Time is money in this industry, so the less time spent on a flip, the higher the likelihood of earning a profit. Use these three tips to help create a path toward profitability on your first or next flip, and you’ll be well on your way toward running a profitable business.