In my real estate business, I prefer to buy and hold properties because it creates a revenue stream long term. However, if you are looking for some fast cash, fixing and flipping properties is a great option. You can make a lot of money, and it teaches you valuable lessons about the market.
There can be more risk when flipping, however, so today I am going to give you some guidelines for fixing and flipping properties.
Keys to Fixing & Flipping Properties
Look for Distressed Properties
You have to be careful when looking at distressed properties because you can get yourself into trouble. When assessing a potential buy, you should primarily only have to do cosmetic repairs. This can be things like paint, new floors, cabinets or appliances, or even siding on the house. You should never buy something with major structural or foundational issues. That will flush your potential for positive income down the toilet.
You want to purchase a property for less than you know the real value will be. You can determine the real value by the location, size and estimated added value you can create through cosmetic repairs. Other helpful tips for determining value are comparing your potential property to similar properties in the area. What have they sold for? You can also ask yourself what it would cost to rebuild the house you’re looking at. You make money in real estate when you buy, not when you sell, so it’s key that you find a distressed property with the potential for a lot of value.
How to Inspect a Property
When you look at distressed properties, you have to know how to inspect them. I have had many interior problems in my properties, and the number one has always been water damage. Check for visible water stains on the ceilings, carpets or floors. If you’re looking at a house that was built before 1978, then check for lead-based paint. Windows can also be a great cost, so look for operational windows that are in great shape. Electrical problems can cause huge issues. I prefer not to buy homes with aluminum wiring, but also check the electrical panels, plugs and the heating/cooling system.
On the exterior, you want to look at the roof, first and foremost. You don’t want any sagging, discoloration or leaks. Chimneys may also need to be replaced, and they get expensive. In different parts of the country, houses are built on different foundations. Some places are on concrete slabs, but because of soil problems, the foundation may need to be leveled. Finally, you should inspect the septic tanks to make sure they are in proper working order.
I fly over $100,000 a year on airlines. You can be riding along smooth, and all of a sudden, you run into some severe turbulence. There will often be bumps while fixing & flipping. Oftentimes investors uncover tax liens that have been taken out on a property, or you can come up short of money. The timeframe or cost of repairs can skyrocket, so you just have to expect something to go wrong. You also have to know how to fix the turbulent situations and get yourself out of them.
Have an Exit Strategy
Whether you are buying and holding or fixing and flipping, you need to know how you are moving out of your properties. When you are flipping, you need a timeframe for when you are going to get your money back. Determine if you can sell the house in 90 days or 6 months. You must identify the costs and know when your money is coming back to you.
If you know your exit strategy, and an estimate of the amount of money you’re going to put into flipping the property, you should have a pretty good idea for how to put a deal together. Factor in how much you will pay on the mortgage for the time you own it, how much you plan to spend “lipsticking” the property, and how much you will spend advertising that it’s for sale. When you calculate this all, you know how much you need to sell the house for to make money.
There are many routes you can go down in real estate. Fixing and flipping is great for some people, they can have a real passion and talent for it. It can get risky, though, so follow these guidelines, and be smart! What do you do in your real estate business?
I am hosting a real estate workshop April 20-22nd, 2018, and I’m inviting you to come. Whether you are just beginning to look at real estate, or you’re an experienced investor, I guarantee you will learn some new things this weekend. Click here to learn more about the event, and if you’re ready to invest in yourself and in your future, click here!