What are the five things I’d tell a family member if they were starting their first fix & flip project? Here you go.
When you think about it, there’s not much to it when it comes to doing a fix & flip. Buy the property for a steal, invest in renovations that increase the value, sell it for a profit. Yet there are so many flippers out there scrambling to make ends meet; where’s the disconnect? Are there some closely kept secrets for how you can get rich by flipping houses?
The secrets aren’t as mysterious as you think: Find properties no one else is looking at, stay realistic with your time and budget, stay active & participate with your hired pros, and don’t let greed overshadow good money.
Sounds simple enough, right? Let me tell you more about each secret and how you can actually use it to become a successful real estate investor. Ready?
Secret 1: Stay Away from the MLS
The first step for having a successful fix & flip is sourcing the right property. Your default source for finding houses would most likely be the Multiple Listing Service or MLS. The MLS is where realtors and owners selling their homes themselves list properties once they’re ready to be sold.
It makes sense in a way to head to the MLS first. But if you want to find the real deals, you’ve got to get more creative than that. Otherwise, you’re likely to end up in a bidding war against both retail owners (people buying the house for themselves) and other real estate investors.
How to do it: Head off-market to find better deals. You can check out foreclosures or short sales exclusively, but I rely most on my Driving for Dollars method to source inventory for a steal—and with little-to-no competition.
Secret 2: Establish a Tight Budget
The devil is in the details when it comes to budgeting for your next flip. Don’t get caught underestimating your costs, or you’ll end up in a tough situation where you’ll need a quick cash infusion.
How much money will you need for your flipping budget? Here are a few ideas on the going rate for the most popular types of rehabs on a fix & flip.
|Type of Fix||Examples||Average Cost|
|Exterior Aesthetics/Curb Appeal||Landscaping, power-washing siding and sidewalk/driveway, repainting or adding new siding, replacing windows and shutters, updating exterior light fixtures||$2,082 - $23,219 depending on the quality of new fixtures and additions|
|Interior Aesthetics||Paint, Cleaning, Repairing or replacing fixtures and cabinet hardware, new carpeting or rehabbing hardwood floors, replacing light fixtures||$1,200 - $9,000 depending on the quality and intensity of work being done|
|Kitchen Rehab - Light||Replacing outdated appliances with new energy-efficient models, replacing fixtures and cabinet hardware, adding an island, replacing sink and countertop with basic models||$26,214|
|Kitchen Rehab - Heavy||Replacing outdated cabinets and appliances with top-of-the-line commercial-grade models, replacing backsplash with glass tile or imported ceramic, installation of pot filler faucet over stove, installation of water filtration system, installation of new tile or hardwood flooring||$149,079|
|Bathroom Rehab - Light||Replacing fixtures, updating with a standard toilet, counter, sink, or shower/tub options, painting or wallpapering walls.||$24,424|
|Bathroom Rehab - Heavy||Overhauling layout, replacing fixtures and toilet, shower, sink, and counter with high-end options, adding heated floors, improving HVAC||$75,692|
How to do it: Source estimates from at least two different general contractors and require they give you an itemized list. You’ll probably want to pad that with an extra $10k to be safe because something always comes up that wasn’t expected. Go to your hard money lender with these estimates and ask them if you’ve got any blind spots in your budget. Hard money lenders are more experienced with fix & flips than your traditional bank, so they’ll be more than happy to guide you with finding the ideal budget for your flip.
Secret 3: Keep Communication Lines Open
I cannot stress this tip enough! The secret to a profitable fix-and-flip is OVER-communicating with the team you’ve assembled to get this fix & flip done. Remember, this is your money and your investment, so no one will be a better advocate than you.
How to do it: Keep a “cheat sheet” of the partners you’re using for each property. Include your lenders, contractors, real estate agent, attorney, etc. Think of the list you’d leave a babysitter while you’re out on the town. Have regular check-ins to see where everything is and expect things to stay on keel and be delivered on time. Try keeping a spreadsheet that has summaries for every time you speak with someone so you can have something easy to reference. Also, try to have a list of backup professionals if something goes wrong.
Secret 4: Establish a Realistic Timeframe
With a fix & flip, you’ll be on the hook for certain hard deadlines that you must meet, including when your hard money loan is due, when your carrying costs will overtake your profits, the seasonality of your local market, etc.
How to do it: The average fix & flip takes six months to sell. Using that as a baseline, start working on what a realistic timeline looks like in your market, with your budget, and then pad it a little more with an extra month or two if you’re new to this.
Secret 5: Don’t Get Greedy
When it comes to pricing your rehabbed property, do NOT get greedy! Many new flippers mistakenly believe they can charge a premium price that sets them up for life. While I wish that were the case, it’s more likely that you’re going to make more compromises than you’d like.
You’ll be basing your values on “comps,” basically how much similar homes sell for in the same area. Few will want to buy the most expensive house on the block, no matter how well it’s rehabbed. Therefore, when learning house flipping, you need to focus on pricing your property competitively.
How to do it: Use comps to your advantage to find a realistic list price. Stick to your budget and don’t take things personally. Too often, new investors will get sentimental about updates they’ve made that just aren’t meshing with potential buyers. Keep it professional, and don’t try to bully your way to a better price.
If I had to give you one secret that you must learn, it’s this: Be realistic. That’s all! Don’t let yourself get caught up in “could be’s” and focus on the current reality of both your budget and the market. The more you can stay grounded in your expectations, the easier it’ll be to turn a profit.