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!
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.