Whether you’re a seasoned investor or are about to tackle your first fix and flip project, saving money throughout the process is directly correlated to your bottom line. Taking steps to reduce costs throughout the various stages of the project will give you a greater return on your investment when it comes time to sell. This is the basic premise of “fixing and flipping” for a profit.
We often work tirelessly to save money during the actual flip–on labor, materials, even carrying costs–but how can you reduce your expenses from start to finish to make sure you see a profitable flip?
If you take the time to do your research, plan our your method of attack and secure financing that best suits your goals, you can save quite a bit of money along the way. Here are a few tips to get you started:
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5 Smart Ways to Reduce Your Fix and Flip Expenses
Tip #1: Find the Property That Fits Your Goals
Finding the right property is one of the first things you can do to save costs. Since it’s not guaranteed that you will sell the home immediately after you’ve completed renovations, make sure you’ve carefully considered any additional costs that may be associated with the home. Are there HOA transfer fees, monthly association dues or special utility needs like cleaning out a septic tank? Consider the fees or costs that will add up if the property doesn’t sell immediately
Along these same lines, it’s important to choose a property in a community where there is demand for quality housing. Demand for properties similar to the one you select will help limit the time to sell, which in turn will reduce your carrying costs.
Tip #2: Estimate Costs Accurately
Make sure you’ve done your research to estimate the amount of time and money it will take to complete the projects you’re about to tackle. If you’re planning on completing some of the work yourself, you can save a significant amount of money. However, some things should be left to the professionals.
A good practice is asking for multiple bids from various contractors, comparing those bids against their portfolio of work, and then selecting the contractor that best suits your individual needs. You may also consider bringing all of your business to one contractor in order to ask for a reduced rate.
Tip #3: Consider a Joint Venture
Another great way to save money prior to starting your flip is to form a joint venture with other likeminded people. In this business agreement, all parties contribute equity and then share in the revenues, expenses and profits. If you’re cash-strapped, this can be a great way to find the funding that you need to get started–and you’ll have support throughout the fix and flip transaction.
Tip #4: Pay in Cash
There are a lot of carrying costs and fees associated with purchasing a flip property via a mortgage. When you can, pay cash. If you must finance, there are a number of things you can do to try to minimize the associated fees. First and foremost, shop around. You want to find a lender that can offer the best rates and terms. If you have a preferred lender but are getting better rates or programs from another, give your preferred lender the opportunity to earn your business. A little friendly competition never hurt anyone.
You’ll also want to review any closing costs associated with the purchase of the property. Real estate attorneys and escrow companies charge different fees, and shopping around in this department is a good practice, too. This can drastically impact the cash needed to close.
Tip #5: Streamline Your Timeline
Purchasing the property and getting started on your flip quickly can also help reduce carrying costs and thus the cash needed to close. Before you get started, be sure you’ve been pre-approved for financing (or have cash in hand) and are ready to jump when you find the right property.
Another way to streamline your timeline is to have great relationships with your vendors so that when you’re ready to begin, they’re there for you. Lastly, consider the time of the year and how weather may play a role in your flip project. While not all flips can happen during beautiful spring and summer months, taking the seasons and weather into consideration can help keep your timeline on track.
Of course, this is just a short list of the ways you can reduce your fix and flip expenses. There’s a lot of money that can be made from fixing and flipping homes. If you have done your research, are knowledgeable about your local market, and have secured financing options that will help you get to the closing table as quickly as possible, you’ll find the path to success will come easier.
What tips would you add to this list?
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