Flipping can be a lot of fun, right?
You get to turn something ugly into something beautiful.
You get to hone your design skills and impress your friends.
And, let’s be honest…
You can make a lot of money.
But house flipping is not as easy as the TV shows make it seem!
You know that, right?
Good! You are already farther along the path than most flipping newbies.
House flipping can be fun, challenging, and profitable — but it can also be dangerous. Many people have gone bankrupt because they decided to get into house flipping.
I’ve lost money on flips that didn’t turn out the way I wanted.
However, like any business venture, practice makes perfect.
Ok, that’s a lie. You’ll never be perfect at house flipping. But at least “practice makes better.”
Today I want to talk about five vital tips for house flipping success that I wish I had known when I first started on my house flipping journey. Knowing these would have saved me hundreds of hours of wasted time and thousands in lost dollars.
Let’s make sure you avoid that and find incredible success on your house flipping journey.
*** Hey, you! Yes, you! If you are reading this post, you must like the idea of house flipping. If so, I want to invite you to this week’s BiggerPockets Webinar, How to Analyze a Fix and Flip Deal (And Avoid Getting Burned!). We’ll be talking about the best ways to do the math, which is tip #1 on this list! Hope you can make it! And now back to the post!)***
Okay, let’s get to the five vital tips for house flipping success
How to Estimate Rehab Costs!
Estimating rehab costs accurately can make or break your real estate business, and it takes years of experience for even the best rehabbers to master the art. However, you can expose yourself to less risk and get more accurate with your projections by learning how the pros think when estimating construction costs.
1. Understand the Math
Before the paint colors, before the new countertops, before the demolition…
There is the math.
The math is like a crystal ball, helping you see the future.
It shows you the right improvements to make.
It guides you to the best neighborhoods.
It helps you know if you will succeed or fail.
However, so many people struggle with the math. They see a dilapidated house and start thinking about all the beautiful things they could do to the house, but they don’t see the math behind it. Does it really make sense, financially? Is this house really going to provide a great profit? Should you really do this flip?
The math helps you answer those questions. The math helps you gain confidence. The math helps you avoid mistakes.
The math is not as simple as the TV shows make it seem, but it’s also not rocket science either. It’s simply a matter of knowing ALL of your expenses and subtracting them from your ultimate profit.
There are many blog posts here on BiggerPockets about analyzing a flip so I’m not going to dive deep into the topic here.
Also, if you are not using the BiggerPockets House Flipping Calculator… you are missing out. Seriously, it’ll save you a dozen hours a month analyzing deals!
2. Know Your After Repair Value
When you decide to get into house flipping, there is one single number that is more important to get right than any other.
Your ARV or “After Repair Value.”
In other words, what is the property worth after it’s fixed up?
Tip #1 in this post was to become a math nerd when flipping houses, but tip #1 begins with this number. If you don’t know your ARV, you’ll struggle to ever make a profit.
Related: What is ARV or “After Repair Value”?
I once flipped a house that I thought would sell for $170,000.
It sold for $120,000.
I didn’t know my ARV correctly.
So how do you determine your property’s ARV?
The ARV is determined by looking at what other similar properties have sold for recently and making adjustments accordingly.
For example, if a similar house sold for $250,000 and it is just a little bigger than yours, then you might estimate a slightly lower ARV than $250,000. If a similar house sold for $200,000 but had one-less bedroom, you might estimate a slightly higher ARV.
Learning to estimate the ARV is both a science and an art, but the more you do it, the better you’ll become.
3. Consider Partnering
In the beginning, I tried to do everything myself.
But here’s the thing:
I’m really crappy at a lot of things.
Today, I’ve realized this. And I’m not ashamed of it — I use it to my advantage. I maximize what I’m good at and find others who can compensate for my faults.
For me, that often means using a partner when I flip houses.
For example, for the longest time I had no money to flip houses. So I used a partner to help with the financing. I find the deal, I manage the flip, they bring the cash. (You can learn more about this in my book, The Book on Investing in Real Estate with No (and Low) Money Down.)
Today I use a partner because I’m too busy to flip alone, so I work with a partner who has the time to be the “boots on the ground” while I work on the financing and deal funnel parts of the business.
The beautiful part about a partnership is that 1+1 doesn’t always equal 2. With the right partnership, 1 + 1 can be far greater than 2. In other words, two people can often accomplish FAR more than twice what one person could. This is because each person is working on what they do best and letting someone else do what they do best.
So should you partner on your next flip? Maybe. Maybe not. But at least be open to the idea, and keep an eye out for someone who can cover your faults.
Because we both know you have them!
4. Weird Houses = Bad Idea
House flipping is often the most profitable when it’s the most boring.
This is because trying to flip “weird” houses often results in disaster. The best house flippers I know flip the same style house over and over and over.
They use the same materials.
The same colors.
The same crew.
Yes, it’s boring. But it just works.
I’ve gotten myself into trouble in the past by trying to flip “weird” houses. For example, the flip I talked about earlier, where I thought the ARV would be $170,000 but ended up selling for $120,000? That was a weird house. It was far bigger than most other homes in the area. It was a duplex that I turned into a single family home. It had an incredible view of the ocean, which I thought would make it more valuable.
Related: 5 Smart Ways to Reduce Your Fix and Flip Expenses
However, because it was weird, it was incredibly hard to hit the ARV correctly.
When you get into house flipping, it’s important to flip the most common houses that people want to buy. If everyone wants a 3-bedroom, 2-bath home in Neighborhood B, why flip a 5-bedroom home in Neighborhood D? Flip what people want to buy!
Yes, it’s boring.
But you can’t complain when the money starts rolling in.
5. Keep Your Contractors on Task
One of the reasons many investors end up failing on their house flipping journey is because they fail to correctly manage their contractors.
If left uncontrolled, even a great contractor can double your budget and your timeline. It’s your job to manage those contractors correctly and keep them on task.
One way to do this is to only hire the best contractors. Screen carefully, call references, and work with people who are ambitious and are quality craftsmen.
Once you begin working with the contractors, always leave the contractor “hungry” and wanting more money. Never pay everything up front, but only release funds once benchmarks have been achieved on the job site. This ensures the job gets done quickly and efficiently.
For more tips on managing contractors, don’t miss 8 Simple Tips for Managing Contractors Without Losing Your Mind.
There you have it! Follow these five tips and you’ll never make a single house flipping mistake again.
Of course you will.
But follow these five tips, and you’ll definitely make fewer mistakes. These tips reflect some of the biggest mistakes I’ve made on my house flipping journey, and it is my hope that they will allow you to avoid the same mistakes.
If you enjoyed this post, I need to ask three simple favors:
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- Comment below and let me know your thoughts. Do you have any other tips you want to share? Questions about anything I said? Let’s talk!
- Sign up for this week’s webinar, How to Analyze a Fix and Flip Deal (And Avoid Getting Burned!). See ya there!