If you decide to start a fix and flip property business, you have to know its potential risks. You need to know the importance of picking up the right properties to flip. Otherwise, you are going to struggle a lot. Usually, newcomers underestimate the time or money required and overestimate their expertise. Always remember, flipping properties has never been an easy thing to do, especially not as easy as it looks on the TV. It requires a great amount of skill and experience to succeed in this business.
But it doesn’t mean that; you, as a beginner, can’t find a perfect fix and flip property. To be successful, you need to know how, where, and when to pick the right property. You should know which things you must avoid and what things should be given the most importance. Would you like to know about them? I bet so:
1. Take your time to find a perfect property to flip:
As a Novice, always rely on “for sale by potential owner.” By doing this, the initial buying costs could be minimized, and profit margins could be maximized. To do this, you have to show patience. In our business, patience is the key to success.
Generally, beginners in this sort of business hire a realtor to help them buy a perfect property. Surely, they are in haste to earn a fortune. They don’t understand that buying and selling property takes time, and sometimes the profit margins are even slim. So, to succeed, you have to show persistence.
2. Try to gain knowledge and Respect the Situations:
Secondly, you must be willing to learn from your surroundings and have the ability to adapt according to the situation. For this, you must have contextual knowledge of the realistic valuation of the property. Before buying the property, you should be well precise in evaluating the exact costs of the necessary renovation and repairs. By doing this, you would limit your financial risks and could maximize your ROI. In simple words, please don’t pay too much for the property by knowing its real worth.
Seriously, in a neighborhood of $200,000 homes, do you think of buying at $70,000 and then selling at $300,000? The market is far more efficient for this. So, what should be the thumb rule for an ideal purchase price?
As a Novice, you have to follow the 75% rule. It states that you should not pay more than 75% of the property’s after-repair value as an investor, excluding the repairs needed. For instance, if it’s a $200,000 home, and it needs $30,000 for renovation and repairing purposes, then according to the 75% rule, you should not pay more than $120,000 for the property: $200,000 X
0.75 = $150,000 – $30,000 = $120,000.
Similarly, it would help if you had clarity with flexibility in your thinking. The transparency in a decision-making process, i.e., which things need to be renovated and which could be easily skipped. And flexibility in challenging situations, i.e., when to cut your losses and get out before your project becomes a money sinker.
We have now discussed the right mindset and approach that Novice should have while purchasing a perfect property. Let’s discuss the general characteristics of an ideal property for your next project.
3. Simple-designed homes are always profitable:
The first thing you need to consider while purchasing a perfect flip and fix property is its unfussiness. Always remember: Simple-themed homes are much easier to sell than fancy and trendy homes. Yes, modern homes indeed look like a good investment, but the truth is; they aren’t a good place to start your business. On the other hand, bright homes with simple themed colors will make your life much easier than homes having fancy bathrooms and woodworks.
Secondly, you have to give full attention to the layouts of the property. There are things that you can’t fix. For instance, in a home; where just to get to the kitchen, one may have to go through a hallway or a home with random bedroom sizes. A five-bedroom house is always better than three. These kinds of odd layout homes need particular buyers and hence are difficult to sell.
4. Structurally Well-Constructed Property to Flip:
Some homes would be well-planned, well-themed, and profitable. You may think; this is the perfect fix and flip property that you are looking for. But wait, is it structurally sound? You need to check that too; because in the end, your reputation is at risk. In this world of business, as in any other, loyalty to the clients matters a lot. If corrected, loyalty is everything.
In this fix and flip property business, it’s super easy to fraud anyone. Most of the clients are unfamiliar with the sound structural characteristics of the homes. Of course, no one is going to dig a foundation. Also, it takes no time to cover all thin hair-shaped structural cracks. But eventually, after three-to-five-year, the client would be able to know. So, don’t put your reputation at risk.
Now, what could you do in the first place?
After evaluating every aspect of the property, it’s time to have a structural check as the last step. One may inspect the structure’s structural integrity by checking its drainage system, proper sloping, water leakages, dampness, thin-shaped cracks mostly on the edges, improper roofing, etc.
Buying a faulty home should never be an option. Poor drainage and foundation could result in huge cost repairs. Always try to find a home with a solid roof and foundation. If you find anything questionable to these, it’s better to leave it.
5. Location, Location, and Location:
Lastly, the location of a property is equally important. It will be a big mistake if you purchase a home in a bad neighborhood. Always try to find a place where homes could be easily sold. Availability of playgrounds, schools, parking lots, and grocery stores plays a massive role in selling a home.
Stay tuned for the next Part: When to flip?