Making a flip profitable starts with one straightforward requirement: find a great deal. These tips are straightforward but crucial if you want to nail your first flip or your tenth.
1. Spread the Word that You’re In The Market
By this point you should have a rock star team nailed down–a few professionals you can trust to help you make your flip a success. But you also want to get the word out to family, friends, and any connections that keep an eye on the market for any reason. They’ll be able to keep their eyes open for newly-listed properties that might be right up your alley. Some of the best deals are landed this way, well before homes even hit the MLS.
2. Learn to Identify Big Issues
As you gain experience, you’ll develop an eye for projects that are going to be too extensive to take on–and how much the bigger projects will cost you. If at all possible, walk through the potential property with your contractor by your side; they’ll be able to keep an eye out for major issues and give you an idea of what you’re looking for.
A good rule of thumb? Always look at the roofline first: does it look stable? Weak? Awkwardly added-on? A roofline can reveal either structural integrity or burgeoning foundation issues. Other red flags include evidence of extensive water damage, additions that aren’t up to code, and evidence of extensive termite damage.
3. Don’t Let Ugliness Put You Off
When you purchase a property to flip, you’re purchasing someone else’s problem–something they don’t want to deal with. That usually mean the property’s going to be a train wreck in terms of curb appeal and interior finishes. That’s what you want. Aesthetic upgrades are the easiest–and least expensive–to add. Find a structurally-sound home at a great price that just needs a facelift, and you’re golden.
4. Remember the 70% Rule
Many pros use this formula to determine whether a home is worth your effort. What do you expect the market value of your home to be after your repairs and upgrades? Ideally, you should pay no more than 70% of that number, minus the cost of repairs you’re putting into the home.
So for a home you expect to be worth $300,000 after you put $45,000 worth of repairs and upgrades into it, you’d pay no more than $165,000:
$300,000 (retail value) x 0.70 = $210,000 – $45,000 (repair costs) = $165,000
By spreading the word far and wide that you’re looking, knowing what you’re looking for, and having a method to run the numbers before you dive in, you’ll set yourself up for success. Next step? Plan your renovations like the brilliant project manager you are.