Fix & flip is a popular method for real estate investing. With a fix & flip, you buy a property that is in some state of disrepair, fix it up, and then sell (or “flip”) it for a profit. But what if the “fix” part of a fix & flip makes you nervous? Does that mean that you need to be a professional tradesperson to become a flipper? Oh no, do you need to be a general contractor to flip houses?!
No, you do not not need to be a general contractor to flip houses. Anyone can become a real estate investor, even if they have no handyman skills whatsoever. There are many different ways to become a real estate investor that don’t require you to repair a property at all. That said, if you are a general contractor who is looking to become a house flipper, having that skill set will come in handy.
Much like you don’t need to be a Realtor to become a real estate investor, you also don’t need to be a general contractor to flip houses for a profit. But before you break out your tool belt to buy that “handyman’s dream” home, let’s break down what a general contractor actually does, what to do when you need one, and things you can do on your own.
What is a General Contractor?
A general contractor is a professional tradesperson who is the project manager of a construction job. It’s their duty to oversee the work, manage materials, negotiate pricing, and finalize the project upon completion. While they are not professionals designated in a particular field (hence the “general”), they usually have an above-average understanding of basic construction processes.
A general contractor usually carries a business license from the state in which they’re located. The license doesn’t carry over; if a contractor moves to a new location, they’ll need to apply for a new license. This license not only ensures you’re dealing with a professional but also helps keep you protected in the case that the work they’ve carried out is unsafe or results in injury.
Having a license will also mean that the contractor is bonded, which means that you, the client, are protected against any financial loss if the contractor cannot complete the job.
Do I Need to Fix Houses Before Selling Them?
Fix & flip is just one of the many routes that real estate investors may choose to use. It’s probably the most popular method, thanks to reality TV shows that show incredible reveals of formerly-distressed homes. Even I’ve got to admit, seeing some of those reveals makes me want to get the sledgehammer out. Open concept for all!
While fix & flip is popular, it’s a very challenging way to run a business. Fixing up a house to sell can be expensive and time-consuming. Suppose you run your business on a property-by-property basis. In that case, I recommend getting a highly-skilled inspector to assess the property and give you a full rundown of the condition the home is currently in. That way, you can decide whether it’s worth fixing up or if you should go another route (or walk away altogether).
If you’re planning to sell directly to a homeowner, fix & flip is probably the most profitable solution, as buyers will want the home to be as “move-in ready” as possible. Few will be willing to take on the workload unless you’re selling at a meager asking price.
That said, don’t feel like every problem on the inspection report will require a considerable investment. Not all repairs will require a licensed contractor. If there are minor fixes that you’re comfortable doing (like painting or replacing broken tiles), you should be able to increase your asking price when you’re ready to sell because you’ve upgraded the home’s condition.
However, it’s not the only way you can run a real estate investment business. Don’t feel like you need to be a jack-of-all-trades also to be a house flipper.
When in Doubt, Try Wholesaling
If you’re not handy or aren’t willing to take the time and money to fix up a home, there are alternative investing methods like wholesaling.
Wholesaling is like trading options in the stock market. Essentially what happens is that you, as the investor get a property under contract for sale. Then, rather than taking ownership of the property, you sell the contract off to another investor for a profit.
There are a few ways wholesaling can work. You can either sell the contract outright for a fixed price, sell it for a share of the profits the new owner will make, or a combination of both.
Wholesaling is also great for those with poor credit who cannot get traditional financing or are having difficulty securing a hard money lender. Since you never take ownership of a property, you don’t need to secure a loan or mortgage. It’s also a great way to dip your toe into real estate investing and work your way up to fix & flip, should you want to do so.
What Should I Do If I Need a Licensed Contractor?
So let’s say that you’ve decided to fix up a home before selling it for a profit. You’ve taken a look at the work that needs to be done and think you (with the help of YouTube tutorials) can make it happen.
Then after digging in, you realize that, oh no, that’s not actually the case at all. Now you’re stuck with a bigger problem than you anticipated and are wondering what to do next. What should you do when you’ve created your very own money pit?
The answer: you hire a licensed contractor! Just because you aren’t a general contractor doesn’t mean you shouldn’t have one on your contact list. If you run into a problem with a repair that you’ve tried on your own, don’t feel like you have to take the loss.
Get a licensed general contractor to assess the work and get you a fair estimate on the costs. That way, you’ll be able to work the numbers to see how much this will eat into your profits or if it can increase your asking price and raise your overall profit.
A side note here: While it may be cheaper to go with someone who isn’t licensed, give yourself the peace of mind to invest in a licensed contractor. They’ll most likely be insured and bonded, which can save you so much aggravation down the line.
While you don’t need to be a general contractor to flip houses for a profit, it can be extremely helpful to have that knowledge at your disposal. In the end, it all comes down to managing the budget, timeline, and quality of work that you’re willing to invest in the project. If fix & flip is a cornerstone of your business, then find a reputable, licensed contractor who you can call on when needed.
But remember that fix and flip is the only method of real estate investing. If you’re not handy and aren’t interested in bringing on skilled help, give wholesaling a shot instead. Running your business the best way for you is the key to success, so give these tips a try and let us know in the comments which way works for you.