Home sales are hot! And there's not a lot of inventory available. You know what that means? You can make a lot of money enjoying low supply and high demand. In a year where most businesses are losing clients and revenue, the real estate market can be an excellent opportunity for you to make some money in 2020, flipping houses. Follow these steps and have a successful project.
Step 1 - Research
All trades are won on the purchase, not the sale. When you are buying anything to sell, you need to know how much it would sell for, and then make the purchase. What I see happening in flipping projects is people thinking that they will add to the price of their bad decisions. This is not going to happen.
When you drive up and down the neighborhood to find a house, you need to know exactly how much you will sell it for, and in which conditions. You must do the numbers backward: how much would I sell it for? How much would I have to spend to make it good enough for that price range? And, based on that, how much would I need to buy it to make a profit that's interesting to me?
Also, make sure that you got the location right. Sometimes, on paper, a deal can be feasible. Still, the market in that area or the address of that particular property is not something that buyers are looking for. Make sure there's enough comparable to justify your effort to sell it. If your numbers are correct, but your base of comparison is just the one house sold in the last 18 months, that's a good indicator that you are in the wrong places.
Find good properties in desirable locations isn't the easiest thing to do, but it's a must when you are looking to a quick and successful flip.
Step 2 - Inspection
An inspection period must be requested before you make a hard deposit. This is where you are going to lower your risks. It's much better to spend a couple of hundreds, maybe a thousand dollars in inspection, and then finding out that this property is not suitable than skipping this and buying something that's destined to be a terrible investment.
Remember, I said that the inspection period will lower your risks, meaning that starting at this moment, you are already investing. When the inspection report comes, look for structural defects: foundation, roof, beams, major electrical or plumbing issues.
In the case that you found them, your job is going to be harder, more expensive, and with more risks. To move forward, you need to have enough profit there that justifies this. When possible, avoid renovations with structural or significant defects. Going for the aesthetic renovations is the best world.
Step 3 - Budget
Ok, you found the house and have the inspection. Now it's time to finally list everything you need to do to make this house a sure sale. Have your General Contractor or owner's rep helping you with this. Work exhaustively on this. Every penny counts. Avoid rounding numbers and guessing the cost of repairs. You must start the construction with a fixed budget and making sure you didn't forget anything.
After you have the construction budget, add all the soft costs: permits, interests, property taxes for the renovation period, utility bills, accountant, attorney, closing costs, architect, engineer, insurance, bank fees. Everything that could be involved in the direct or indirect cost of your renovation must be added to your spreadsheet.
Make your budget your bible and stick to it.
Step 4 - Get your permits.
I see many people doing construction without permits. Don't do it. It will cost you more later. I've been to Town meetings where people were given large fines because their neighbors reported them to the local authorities about illegal construction. Do not make this mistake. Even small touch-ups might need a permit. It's better to spend a few bucks here, than having to pay for it later and a big fat fine.
Step 5 - Keep within the plans.
Two major factors can make or break a construction: cash flow and schedule. If you do not have your cash flow prepared, you will exceed your schedule. If you don't have a schedule or exceed it, you will spend your cash flow.
Spend enough time in the planning phase, so you don't have delays when you start your construction. If possible, ask your architect to use software like BIM - Building Information Modeling. This software will overlay all of the projects and allow you to check if there's any conflict.
When I built One by Tross, in Bay Harbor Islands, FL, our architect didn't use this program. The result was that in almost every step of the construction, we had to stop for a couple of days for them to re-do the plan, submit to the City, get the approvals, and only then we would continue.
Problems such as the AC ducts overlapping the plumbing, the electrical, structural, etc.
If you are doing a quick flip, plan before, so you only stop at the end once you start. AND AVOID CHANGING ANYTHING DURING CONSTRUCTION!
Step 6 - Sell your flip with a professional
Yes, I'm a real estate agent, and you might think that this is the time when I'm selling you my expertise, and how you should hire me (or other professional), etc. That's true; however, I'm going to point out some reasons you should work with a professional, and you tell me if you agree or not.
Expertise - using real estate agents specialized in your market will expose you to the right people. Yes, you can put a sign on your garden, and even publishing it on Zillow. But you are only going to be shown to a limited amount of people. A (good) real estate professional is always actively promoting himself, the area he specializes and products. Even when he promotes your neighbor's house, you will be benefited, just because the realtor will always show several options for the buyer.
Information vs. Opinion - while most of the people have an opinion, or a guess, of how much their property worth, a good realtor will do a proper market analysis, with more information to her disposal than to a FSBO that doesn't have access to the Multiple Listing System (MLS). Pricing the property right is 90% of your sale and will avoid back and forth of offers and speculation.
Lack of emotion for the deal - I've been there. I've built and tried to sell, or negotiate, by myself. You know what the problem is? I know exactly how much work I put on it and was 1) overvaluing my project and 2) taking offense every attempt of the buyer to bring the price down. The realtor is there to do the best for the deal, meaning making everyone happy: buyer pays less; seller accepting an offer (way) above their cost; agents getting their commission.
Those are 3, but not exclusively, reasons you should work with a professional. In the end, your job is to make an excellent project to be sold. Once your work is done, the real estate agent will do his magic, and you will get your money.
Now, are you ready for your next flip?