5 Simple Tips to Make Your House Flip Strategy Foolproof!

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Investing in real estate can be somewhat unpredictable…

This is why you need to have a plan to eliminate the risk.

It’s nearly impossible to predict what kind of problems can arise during rehabbing or selling or if the market will plateau. Some things you just cannot predict…and market valuations are one of them, so DON’T rely on them for your profits.

One way of ensuring that you make your house flip strategy foolproof is by doing extensive research to get rid of any variables that may sink your venture.

Many house flipping beginners are scared of the risk. For many beginners, risk is something they dread. With all those savings and the high chances of falling into debt, it’s quite understandable that anyone would dread taking a risk.

And there’s no reason why you should take a risk unless you have boatloads of cash to burn or can afford to lose thousands of dollars without going bankrupt.

I personally don’t know anyone like this…and you probably don’t either. so that makes these five strategies all the more important.

However, if you lay out a solid house flipping business plan with a foolproof strategy.

5 Foolproof Strategies To Make Your House Flip Successful

1. Leave Extra Padding In Your Budget

You should know that anything can go wrong with a house flip. So even if your budget is tight and you are sure your estimates will work, something unexpected might happen.

Unforeseen expenses might crop up so you have to leave a little room in your budget to cater to the unexpected. This way, even if the unexpected doesn’t happen, the extra money will be part of your profits.

2. Stay Away From Foreclosure Auctions

The unfortunate part of purchasing property at foreclosure auctions is the fact that you can’t truly determine the estimated value of the property because you can’t inspect it before purchasing.

It’s best to stay away from foreclosures because they come with a huge risk. A better alternative is to purchase property that doesn’t sell at a foreclosure auction or a short sale. Both cases allow you to purchase property after you have inspected it.

3. Ask A Contractor For An Estimate

We’ve written about how to deal with contractors many times in this space here…

Many real estate investors first purchase the property THEN they get an estimate. This is risky because you can come across an expense that you overlooked and it could make a difference between whether or not the property was worth buying.

You should hire contractors who can help you determine the cost of plumbing, HVAC, electrical, etc so that you can get a proper estimate of how much renovations will be.

Just ask them to come out on the site and give you an estimate. If you get the house, they get the work. Simple.

They get something and you get something as well.

4. Get Your Property Inspected

I don’t do this one any more, but when I first started I did…just so I knew what I was in for.

On the surface, a house might appear to be perfect but behind the walls and the crawl spaces, it may have some hidden problems. The electrical system could be outdated. It would be hard to pin-point such a problem unless you get the house inspected.

Play it safe and get the house inspected before purchase to avoid paying for major repairs you didn’t anticipate.

5. Don’t Break The 70% Rule

As you probably know, the most important thing to determine before purchasing property is the After Repair Value (ARV). If you purchase a home for more than 70% of the ARV, there’s a good chance that you will not make a profit.

Plenty of factors determine what the ARV of a home will be such as the size, town, neighborhood, etc. The best way to get an accurate ARV is to talk to a real estate broker in the area where you plan on purchasing the property. These brokers know the town and are directly involved in the sale of homes. They can help you avoid the risk of breaking the 70% rule.

 

If you’ve made it this far please leave a comment below! I’d love to know what you think about the foolproof house flipping strategies. What do you think? Did I leave something out? Leave a comment and let me know what you think!

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About Author

Michael LaCava is a full time real estate investor, house flipping coach and the President of Hold Em Realty located in Wareham, MA. He runs the website House Flipping School to teach new real estate investors how to flip houses and is the author of "How to Flip a House in 5 Simple Steps".

25 Comments

  1. Thanks for sharing these great tips. I agree with all of them, but would like to add a disclaimer that I personally feel the 70% rule only works in certain markets and at certain price points. For example, in California, there is so much demand for properties near the beach or in the Bay area (except for the “war zones”), that it would be hard to find enough properties that meet the 70% rule to have a sustainable flipping business.

    • Michael Dorovich on

      Michael, great article!

      Silly question, in line with what CK said above. How do you find properties which meet the 70% rule? I have contacted agents and mostly receive listings at market value. Most of the properties I see listed on craigslist or from wholesalers have nowhere near realistic rehab numbers, often double once you inspect them.

      • Short answer – Listings are almost always too expensive; but you can offer less than the listed price for a property.

        To actually be successful at getting these offers accepted, you need to have some sort of “edge”. Mine is having access to funds for hefty remodels, so I can target listings where the buyers keep backing out because they discover there’s more rehab than they can afford. Sellers get very tired of that cycle, and will entertain much lower offers after a couple months of that.

        • Thanks Eric for sharing
          That is a great strategy and we use that one as well. Follow properties as I am sure you are when you see them under agreement and back on market more than once then you may have one you can make a move on. This works great on REO’s because the asset managers finally realize this after 2-3 deals fall apart.

      • Thanks Michael. Your not looking in the right area’s or maybe your market just might not have deals that fall in the 70% rule. Not many do right now on MLS that is why we buy a lot of off market deals.
        What area are you geographically looking in?

        • Michael Dorovich on

          Thanks Michael, I have been working with a rehabber who will buy in any market as long as the numbers work. I have been looking in markets like Houston, Charlotte, Atlanta, and they seem to be hard to find good deals in.

        • Michael Dorovich on

          Do you have any suggestions on how to find off market deals? I would love to get my first deal going.

      • Not sure what your methods are for finding deals Michael. do you have any good relationships with anyone in those markets that you are working with or how are you prospecting for deals in those markets. Direct mail? Where do you live? I don’t think the traditional real estate agent that works just of MLS is going to find deals for you in the heated up market. Not saying that is who you are working with but figured I would mention it for others.

        • Michael Dorovich on

          You bring up an excellent point. I have been contacting realtors over the phone and asking them to send me properties which need work. Have been trying to filter realtors by asking if they work with investors, but this has not been fruitful. I am located in New York so it has been long distance.

          It sounds like you are exactly right. Do you have any tips on building relationships with realtors who can find off market deals?

          Thanks again for your input.

    • I agree CK. It will not work in some markets if you are buying MLS deals or publick auction where you have too much competition and people overpaying. You either have to find off market deals so you don’t have much competition if any or buy in other markets working your way out from the hot spots. Don’t fall in the trap of overpaying. You may bump the 70& rule up to 75, 80% but I only recommend this for serious investors that have experience and have a tight control on expenses and the cost of money. This WON’T work with hard money at 15% and 5 points for sure.

      Thanks for mentioning that.

      • we get most of of our off market deals by doing our own direct mail. Realtors that bring us deals are the ones that know we can close quickly when needed and inspections are never a problem.
        You can go to REIA meetings and start establishing relationships
        Call 2-3 a day until you strike it with a few
        It is like farming – plant the seeds and they will grow
        google REO brokers and call them directly. Let them know you are an investor looking to buy distressed properties. they may have their tight nit group but you must meet them and follow up and stay in touch. sooner or later when the others don’t sty close she may give you a shot.
        Fostering relationships takes time but just one realtor can make you a lot of money.
        Our best deals most of the time come from the leads we pull in directly.

  2. I’m a new investor & thought this was a great article for newbies & experienced investors alike!
    Very informative

  3. Thanks for the tips!

    A question about #3 & #4 – I had a contractor go over my potential house thoroughly and give a detailed budget for it, and then I waived the inspection in my offer because I felt I knew what I was getting into. Do you feel like a good contractor who takes a close look could remove much of the need for an inspection?

    (N.b. I purchased the above house, didn’t have any surprises…but that could have been dumb luck)

    • Great point Eric. Experience and your comfort level with yourself and your contractor will determine the answer to this and it could be different for some people depending on their risk tolerance. If you are new I would leave nothing for chance because you don’t want to be out of the game as fast as you got in. I seen many go down that road.
      Congratulation on your strategy and it wasn’t dumb luck. You hired a contractor to avoid the big surprises. What you can do is explain to him your strategy and how important it is he gets as close to his estimate as possible because you are buying based on his inspection and evaluation. If he is not confident then he should tell you then you can determine if you want to call another contractor or hire an inspector. Just remember not all inspectors are experts so check them out and get references. It’s your ship man so be a great captain.

    • Thanks Patrick. Happy to help. Check out my other posts and all the other great bloggers hear on BP. Man their is so much information on this site and Josh and Brandon just keep making it better.

    • You got that right Frank. Your team is everything. This is not a solo sport and I have written many articles on building your team which I refer as my power team. Execution is everything and with out my team I would not have the successful business I have investing in RE.

    • You said that right Sharon. You and me both have seen this too many times to mention.
      I know I owe you a phone call. Just been crazy busy as I know you are as well.
      Congratulation’s on your recent venture. you are doing a great job!!!!
      We are making great progress on our bootcamps and would love to have you present at one of them. If you are interested email me and we can talk about the next one after the April one.

  4. I have to laugh at the flipping shows out there now, like “Flip Flop,” for instance. The guy in that show is always buying houses at foreclosure auction, then he always finds big issues with the house, yet somehow he still manages to make a profit by the end of the show. Yeah, if only it were that simple in real life.

    • I know Sharon. It makes me crazy when they don’t disclose all the numbers. Reality TV is not so real at least when it comes to many of the ones I have seen.

  5. Rule #1 — having a contingency budget — is far too often underestimated. Even after my husband and I have gained budgeting experience over the years, we never give in to that rule. It is so important. Great tips for an investor starting out. Thanks for sharing, Michael!

    • Thanks Liz. I hear you. We try and improve on every rehab. It is hard to get right all the time.
      You just don’t always know what you may find. Sometime it goes in your favor like recently we carried for a failed septic and after we had it inspected we found out it was in good shape.
      Always nice when that happens. WE had no competition in buying this house so we were able to just figure it in on the cost of repairs. If we had stiff competition then we would of went through the motion and cost of a title V inspection to be certain of our cost of repair if any so we could tighten up our offer as to not under bid

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