Last updated on September 5, 2019
Fix and flip shows are always killing it.
Not only are they inspirational for many real estate investors and aspiring entrepreneurs, but they make a lot of money, too.
If you also want to join the bandwagon business there are a few things that reality TV doesn’t show you.
For starters, you must be able to manage the risk and have a sound business plan. Besides, you should be able to develop a detailed budget, arrange to fund and be as quick as possible.
Ready to be a fix and flipper?
Here are Few Steps Before You Begin
House flipping is the process of buying a distressed, foreclosed, or low-cost property to sell it at a higher rate soon. Today, it’s become a familiar and lucrative opportunity to make money. In fact, house-flipping is at a six-year high, inviting a lot more aspiring entrepreneurs and investors in the business.
But before you enter, you must be able to learn about the industry and your own finances.
Assess your Skillset
Identify the area of your property investment and determine the kind of renovation required. If you’re in Houston, HAR.com is a great site to reference. Next, based on your experience, you can access the type of building and improvements you can oversee.
Leverage Local Expertise
Try to choose properties in your locality or network for starters. If you want to invest in a new area, talk to the local residents. Remember, knowledge is everything in the real estate business.
Don’t Forget Local Laws
New investors often get blindsided by unexpected property or tax laws. Before you enter the market, make sure you are aware of all the applicable taxes, regulations, and fees.
Calculate your Finances for a Fix and Flipper
Before any investment decisions, it’s best to assess your personal finances. Not only will it help in planning your budget, but also help you understand your risk-taking abilities.
There’s always some risk associated with a first-time house flip. You can consider a hard money loan to fund your investment. It’s an asset-based loan financing that helps you maximize your profits and secure your financial future.
Once you’ve covered the details mentioned above, it’s time to go deep.
Step 1: Prepare Your Business Plan
Your house flipping business needs a plan with definable goals, strategies, funding, and insights. Plus, when you put your goals, profit expectations, and exit plans on paper, lenders will take you seriously. In short, your plan should include:
- A goal summary
- Lead generation plan
- Market analysis
- Financing sources
- Marketing and sales plan
- Business and personal bios with qualifications
Step 2: Build your Fix and Flip Budget
When you start out, make a detailed budget keeping a few things in mind. Don’t forget – expect the unexpected when it comes to house flipping.
No matter how prepared you are, additional costs can come up at any time. When you have the finances ready, you’ll be stress-free and will manage the project better.
Things to include in the budget:
- Renovation costs with the help of a professional contractor
- Hiring a realtor may cost you 6% of the sale value as commission
- Financing costs wherein a hard money loan is the most attractive option for first-time flippers
- Additional expenses like insurance, utilities, maintenance, taxes, etc.
Step 3: Devise an Action Plan
Before money exchanges hands or you sign documents have a solid action plan. This will help in cutting down incidental costs and keep your team focused, too. Having a singular goal with a dedicated timeline will help you complete the project faster.
Include the following in your action plan:
- Building the appropriate fix and flip team
- Choosing the correct neighborhood for your first project
- Registering the house flipping company and opening a bank account
- Setting up marketing operations
Step 4: Secure Financing
Having the right financial partner can make or break your business. If you don’t have enough cash lying around to complete your first house flipping, the next best solution is to consult a hard money lender. They offer faster approvals and funding times compared to traditional mortgages. Besides, you can even get a loan if your credit score isn’t stellar.
Things to keep in mind:
- Choose a hard money lender who has a successful record of helping local borrowers like you.
- Since you want to move quickly in this business, choose someone with speed and responsiveness
- Lastly, ensure that the borrowing process is simple and transparent
Best Practices to be a Successful Fix and Flipper:
- Commit to your business plan, in spite of the curveballs that may come with every step
- Grow your network by fostering relationships with industry professionals
- Make estimates and keep room for flexibility. Timelines and costs can change many times during the process
- Be cautious about your projections and do your due diligence before putting outside capital on the line
Getting started as a fix and flipper is the first step towards a prosperous and successful future. With the right financial backing and professional support, you can surely make your mark in the industry.
All the best!
Gauntlet is a New York based private funding group comprised of experienced and knowledgeable industry professionals who specialize in direct private lending and distressed asset financing.