{"id":24188,"date":"2021-05-28T06:35:55","date_gmt":"2021-05-28T13:35:55","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=24188"},"modified":"2021-06-01T06:36:35","modified_gmt":"2021-06-01T13:36:35","slug":"flipping-homes","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/flipping-homes\/","title":{"rendered":"New to Flipping Homes? 12 Rules Seasoned Investors Live By"},"content":{"rendered":"

If you\u2019re making a go at flipping homes<\/a>, the difference between landing right-side-up or upside-down lies in having the right knowledge. You probably already know some of the basics, like the 70% rule<\/a> that says you should pay no more than 70% of a house\u2019s after-repair value (ARV). And there are the obvious tips, like running comps and sticking to a budget.<\/p>\n

But there are many other less widely known nuggets of wisdom that only come from direct experience. Sure, you\u2019ll pick up valuable lessons with each flip you complete \u2014 but why wait? We picked the brains of several seasoned property investors to get actionable and specific advice that will help you avoid some of the most expensive mistakes. With their guidance, you can embark on a more successful and profitable<\/a> flipping career.<\/p>\n

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Source: (Manuel Boxler \/ Unsplash)<\/figcaption><\/figure>\n

1. Start by buying one property, close to where you live<\/h2>\n

Once you start rehabbing a fixer-upper, it can quickly become a home away from home (whether you like it or not). It will save considerable time and hassle if you choose a property that\u2019s relatively close to where you live.<\/p>\n

\u201cIn the beginning when you\u2019re starting out, you\u2019re going to be actively involved in the day-to-day operations, and going back and forth between your home and the site multiple times a day, at least,\u201d says Jennie Berger<\/a>, co-owner of Property People, which rehabs distressed houses in Chicago for resale. \u201cThe last thing you want is to be running around town \u2014 or on the highway for miles and miles and hours each day \u2014 to get to your jobsite. Having a project close to home (say, within a 30-minute drive or so) will make your life a whole lot easier.\u201d<\/p>\n

2. Learn how to generate a deal on your own<\/h2>\n

Every real estate buyer is looking to get the next killer deal. Don\u2019t expect that someone will hand over a deal and let you make all the money on it. James Fitzgibbon<\/a>, owner of Ledge Real Estate Solutions and a Certified Commercial Investment Manager (CCIM), has been flipping properties in Windermere, Florida since 2002. He found that the key to succeeding as a real estate investor was to start finding the deals on his own rather than getting leads from a wholesaler<\/a>.<\/p>\n

\u201cIf you can master a method for finding off-market deals, it will be your golden goose,\u201d says Fitzgibbon. \u201cForget about trying to find deals on the MLS or online auctions \u2014 there is too much competition there. Get on BiggerPockets<\/a> and learn about the various methods you can use to get a deal and start implementing them. If one works for you in your market, double down on it and grow your business.\u201d<\/p>\n

When Fitzgibbon first got into the business, the internet was still young, and it wasn\u2019t easy to determine the ARV of the first house he was flipping, so he trusted a wholesaler\u2019s opinion of the value. He ended up over-improving the house and trying to sell at the wholesaler\u2019s recommended price. In the end, he broke even, but it took a long time for the house to sell, and the only person who made any money on the deal was the wholesaler.<\/p>\n

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Source: (Emmanuel Ikwuegbu \/ Unsplash)<\/figcaption><\/figure>\n

3. Don\u2019t give all your money to gurus<\/h2>\n

One mistake Fitzgibbon sees new investors make is spending too much money on the learning process, sinking thousands of dollars into \u201cguru courses\u201d until they have none left over to actually purchase a house. Instead, he recommends joining your local real estate investor club<\/a> to learn the essentials and network with people in the industry. \u201cIf you run into a deal that you aren\u2019t comfortable tackling, you may be able to partner with a more experienced investor to get the deal done,\u201d he says.<\/p>\n

At these clubs, Fitzgibbon says to use caution with the guest speakers, as they are usually trying to sell learning packages. \u201cUsually these are reasonably priced and you can get some good information from them. Just don\u2019t get so enthusiastic that you drop $6,000 on their boot camp and don\u2019t have any money left to buy a house,\u201d he says. There are also online resources where you can gain access to everything you need to know at a very reasonable price.<\/p>\n

4. Know your numbers to make the right offer<\/h2>\n

When you\u2019ve found a house you want to buy and flip, the first step is to make a fair offer that will allow you to complete the renovations within your budget. Easier said than done, right? Fitzgibbon shares the plan he uses for coming up with offer amounts for his flips:<\/p>\n

Step 1: Determine the approximate after-repair value (ARV)<\/h3>\n

Once you\u2019ve found a house, you need to determine what you will sell it for once it is fixed up to the best of your ability. You\u2019ll want to embark on your own DIY comparative market analysis<\/a> to get a read on your market and the selling price of flipped homes that are similar in condition, age, size, construction, and style.<\/p>\n

Millionacres brand Fool.com, for example, recommends rounding up at least four properties near your potential flip<\/a> that were renovated and sold in the past 90 days. This should give you a solid idea of what you\u2019d be able to sell the property for in its finished state.<\/p>\n

Step 2: Calculate the cost of repairs<\/h3>\n

Once you have the ARV, you\u2019ll need to estimate how much the repairs will set you back. This can seem like a giant question mark when doing your first flip. \u201cYou need to take the time to learn what it takes to renovate a house,\u201d says Fitzgibbon. \u201cI highly recommend Jay Scott\u2019s The Book on Estimating Rehab Costs: The Investor’s Guide to Defining Your Renovation Plan, Building Your Budget, and Knowing Exactly How Much It All Costs<\/i><\/a>.\u2019\u201d<\/p>\n

On average, Fitzibbon estimates that a whole-property renovation costs about $59,500. He put together a list of the average project expenses in his central Florida town:<\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Project<\/b><\/td>\nAverage Cost<\/b><\/td>\n<\/tr>\n
Whole House Renovation<\/span><\/td>\n$59,500<\/span><\/td>\n<\/tr>\n
Roof Replacement<\/span><\/td>\n$8,100<\/span><\/td>\n<\/tr>\n
New Kitchen<\/span><\/td>\n$20,474<\/span><\/td>\n<\/tr>\n
New Master Bathroom<\/span><\/td>\n$18,000<\/span><\/td>\n<\/tr>\n
New Guest Bathroom<\/span><\/td>\n$10,663<\/span><\/td>\n<\/tr>\n
New Whole-House A\/C System<\/span><\/td>\n$4,925<\/span><\/td>\n<\/tr>\n
New Flooring<\/span><\/td>\n$16,300<\/span><\/td>\n<\/tr>\n
Paint Exterior of House<\/span><\/td>\n$4,863<\/span><\/td>\n<\/tr>\n
Paint Interior of House<\/span><\/td>\n$6,167<\/span><\/td>\n<\/tr>\n
Remodel Swimming Pool<\/span><\/td>\n$8,429<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

Step 3: Do the math<\/h3>\n

For new investors, Fitzgibbon suggests using a 30% margin. This will allow you some wiggle room in case you have any unexpected expenses, or if the market value starts to go down while renovating the house. Below is an example he used for a typical house in his town with a modest renovation budget:<\/p>\n