Posted by F.T. Toscano
Fix and flipping homes may seem like a pretty simple concept. Simply buy a house that needs some work, fix it up and sell it for profit or rent it out for long-term income. The truth is it takes a lot of time to find the right deal, find the right financing if needed, find the right contractor for projects you cannot do yourself, decide what to repair, maintain a property, value a property, make sure all the needed repairs are done and then sell the house. Fixing and flipping houses isn’t something you can spend a couple of hours on a week and be successful. If you don’t take the time to properly plan your project, accurately estimate the cost of materials and labor and do things right the first time, you can turn a nice profit into a loss.
The best way to start out fixing and flipping homes?
The foreclosure market is a great place for beginners to look for bargain-priced properties. These houses typically need the most repairs due to neglect during the foreclosure process. However, this not necessarily a bad thing because foreclosed properties sell at a fraction of their original value, and potential selling price. This provides a great deal of flexibility to increase your budget for repairs and property enhancement.
You might want to network with investors who also fix and flip homes. It is important to know the profit expectations of other more experienced investors. It’s always an advantage the learning off other people’s previous mistakes because you will be competing against them when trying to buy properties. If you are buying homes off the MLS or at the foreclosure sale expecting a $50,000 profit when other investors will settle for $25,000 in profit it will be hard to find any houses to flip.
The real money is not hitting it big with one flip, but in flipping multiple properties that make a modest profit. I have 9 fix and flips in various stages of the process from on the market and under contract to waiting for a contractor to start work. Those 9 fix and flips should make me $250,000 or more in the next 6 months or less. If you are wondering about my math, I want to make at least $25,000 on each flip, but I average about a $33,000 profit. That means I should make around $300,000 from these 9 flips once they are repaired and sold. I am the sole owner of my fix and flip business and that is all profit to me, although I do have to pay staff who help with the fix and flips, my rentals and our real estate sales team.
How long will it take to complete a fix and flip?
Another misconception about fix and flipping is it can be done quickly. Despite my experience, it can take me 6 months or longer to sell a flip once I buy it. It will take weeks to line up a contractor, usually at least one month to complete repairs, a month to find a buyer and then another month to close the deal. In the best-case scenario, you can flip a home in about 4 months if you want top dollar. If your contractor takes longer, it takes longer to sell, or a contract falls apart it is easy to reach six months. The longer you own a flip, the more interest, carrying costs and maintenance costs you will have. Always assume you will have a property longer than you think you will.
How do you find deals to fix and flip?
One of the hardest things to do when fix and flipping homes is buying houses cheap enough to make a profit. I want to make at least $25,000 on my flips and that profit is based on the current market value. It surprises many people, but I buy many of my properties off of the foreclosure market.
Here are a few tips to get great deals:
- Know the highest price you can pay to make enough money before you make an offer. If you are making a low offer, you may need some wiggle room for negotiations.
- If a great deal comes on the market, make a great offer as soon as possible. I am an agent and I can make an offer in less than two hours after I see a great deal come up for sale. I have gotten many deals by being the first one to get an offer submitted.
- If you are in a highest and best situation, make your best offer! I do not base my offer off the list price in highest and best. I base it off of what price I need to pay to make my $25,000 profit. Sometimes I offer 10 to 15 percent more than list price and other times I offer less than list price. Don’t think because a house is underpriced that you can steal it without another investor making a higher offer.
- Do not limit your search to certain types of properties. Some investors only want to buy a REO, but I have bought REOs, short sales, estate sales and normal sales as fix and flips. REOs are hard to find and many of my deals have been traditional listings that needed work or a quick sale.
- Make your offer as appealing as possible. Cash is king and most sellers prefer cash, because a cash deal has a better chance of closing than a financed deal. If you really want to make a business out of fix and flipping homes, become a real estate agent. One reason I can act so fast is I am an agent; I can write my own offers, set up my own showings and save a commission on the buy and sell side. That means I can pay more for a house than most investors who are not agents and make just as much money.
I prefer to flip many low-end homes over one high-end home
Many unforeseen issues come up when flipping homes and I prefer five flips over just one and here’s why. I have lost money before on flips, but it did not hurt me much because my other flips made money and made up for the loss. If I had one high-end flip that lost money, I would be in trouble because so much of my money is tied up in one house.
By having multiple low dollar flips I was still buying and selling houses while that went on. If that had happened to a high-end flip with all my money, I would have been stuck for a year doing nothing but counting my losses.
How do you repair a fix and flip?
Besides finding a fix and flip, the next hardest is repairing a fix and flip. I would not suggest doing the work yourself, unless you have no job and know what you are doing. Many flips go bad because someone thinks they can fix up a home themselves on the weekends and save thousands. The truth is your time is worth something and you will probably lose money if you aren’t a professional contractor.
It will take the weekend warrior ten times as long to fix a home as a professional and the financing costs will eat up all the profit, not to mention make your family hate you. I did all the work on a fix and flip myself and I learned a lot about construction and how to lose money.
When you do repair a home, get bids from multiple contractors. Try to use contractors that have been referred to you by people you trust and get everything in writing. Angie’s List is a great resource to find contractors, if you need a place to start. Do not pay your contractor a ton of money upfront. If it is a small job you should be able to pay your contractor after the job is done. If it is a large job, you may need to pay your contractor in increments as the job is done. Don’t pay half or all the money upfront. Check up on your contractor often to make sure he knows that you are paying attention.
Guidelines on what to repair in a fixer:
- Always make sure the home will qualify for financing; meaning all the major systems work, there are no holes in the walls or safety issues.
- Look at the condition of the homes that are competing with your property. Make sure your home is just as nice if you want to sell it for as much as the competition is asking or sold for.
- Don’t spent more on repairs than a neighborhood will support. Your end buyer will most likely need financing and their financing will require an appraisal. If you are trying to sell your house for more than any other home in the neighborhood then the appraiser will have no com parables to justify your high price. If the appraisal comes in low, you may have to lower the price or find a new buyer. Remember, an FHA appraisal will stick to the house for four months!
A lot of money can be made flipping a home
There is a lot to fix and flipping as you can see by the length of this article. There is much, much more I could share about how to make money fix and flipping homes, but the best teacher is experience.