When you’re fixing and flipping homes, you’ve got to put together a solid team to get the job done. But you’ve also got to source the right properties, get the funding, and prep your properties for sale to enjoy high-level success. You may know a bit about the process of flipping homes already.
Don’t get overwhelmed. Here’s your in-depth guide to creating a successful fix-and-flip team.
What You Need to Know About Flipping Houses
Although you may have heard otherwise, it’s not easy to fix and flip homes. In other words, flipping houses is not for you if you want to get rich quick. But flipping homes can be a rewarding, interesting career that lets you practice a unique skill set that spans industries.
Here’s what you need to know about flipping houses.
Fix-and-flips can be costly.
Securing funding through loans or collateral is one of the most important first steps to consider when forming your team, especially when costs include
- Purchase and loan costs
- Property taxes
- Home maintenance
- Selling fees
You need supplies to flip homes.
HGTV may make it look easy to buy up property, bust out the walls, and replace outdated appliances with stainless steel, but you need supplies to start your flipping business. This includes solid credit, a real estate agent, and a team of contractors that will help you renovate the house. It also doesn’t hurt to have an existing network of people in the industry that you can tap for help on staging the house before selling.
You’ll have to take the market into account before jumping into a flip.
Take a look at the state of real estate investing in 2018 and you’ll see that prices are rising higher all the time. But keeping track of your specific market is essential to your success.
Recently, investors have faced steep competition finding investment properties, resorting to purchasing empty lots over existing homes since 48% of homebuyers are interested in newly constructed homes.
Wholesaling houses could be a solid option for your team.
When you’re first starting out in the fix-and-flip market, you’ll likely manage just one flip at a time. But once you get the momentum started, wholesaling houses can be a way for you to finance your property through an already-existing network of investors.
What makes a good fix-and-flip team?
When you’re getting your fix-and-flip business started, gathering a team to help you make it work is absolutely necessary. While you’ll be choosing the properties, creating the vision, and coaching everyone through the process, you can’t get it done alone. Despite what you see on TV, even the simplest fix-and-flips require a reliable team that can get the job done.
Although you might want to shrink your staff and maximize your profits, the headache of flipping a home by yourself isn’t worth it. And you’ll quickly find that the better the staff, the higher the likelihood that you can flip more homes and ultimately make better profits. After all, professional help in departments that aren’t your strong suit will increase your reputation and help you sell more homes in the future.
Besides a title and settlement company, attorney, permit expeditor, or a wholesaler (depending on where you are in your business), here are the people you need on your team to make it work.
Real Estate Agent
If you aren’t a real estate agent yourself, it’s absolutely necessary that you find an agent who already sells investment properties and can identify homes that buyers would want. It’s also great to have an agent on your side who can help you get a solid price on flip properties. Without a real estate agent, it would be nearly impossible to succeed in the fix-and-flip market, as they’re the pros that will know what the market is doing. Buy a home at the wrong time and the whole flip could be in jeopardy. Build up a relationship with a real estate agent or Realtor who can help you out in the long term.
When you’re taking houses down to the bones, you need an architect who will ensure that a home is structurally sound and has an up-to-date, appealing layout.
A Local Appraiser
A savvy appraiser in your city will help you determine what you can pay on the house so you turn a profit after renovations. Read how you can avoid a catastrophous home appraisal.
A Commercial Insurance Agent
Don’t flip homes without an insurance policy behind you. A commercial insurance agent will help you avoid risks and get the best deal on a policy.
Unless you’re a contractor yourself, it’s quite difficult to flip a home without contractors. Find a skilled team who can do everything from landscaping to carpentry to plumbing because you never know what obstacles you’ll run into when designing the home.
Getting a stager for the home can make the difference between selling and not making a profit. Your stager should have an eye for design that shows off the home so buyers feel the urge to make an offer.
How much money can you make fixing and flipping homes?
You know that the costs associated with flipping homes include maintenance costs like HOA, landscaping, and property taxes alongside selling costs. But what kind of profit can you realistically expect from fixing and flipping homes?
The gross profit margin for most U.S. flips is around $30,000, but earnings can largely fluctuate between states. The 10 best places in the U.S. to flip homes include Pennsylvania, New Jersey, and Tennessee, where the average profit on a fix-and-flip is around $58,000.
Although some flippers can make six figures, managing your expectations at the beginning will ease your experience and streamline the process. Here’s some tips for maximizing your profit and lowering your risk.
When you’re trying to multiply your investment exponentially, it’s easier to do so when dealing in smaller numbers. For example, you’d have a better time of it profiting 10% off a $150,000 than you would with a house three times the price.
Don’t buy the most expensive house around.
Although television shows making flipping a big house seem like a good idea, don’t attempt this early in your career. After all, buyers need a $125,000 down payment to buy a $500,000 house, making such an investment out of reach unless you have a solid network of investors. Plus, expensive houses take longer to fix because larger square footage equals more repairs, materials, and labor. Buyer expectations can be much higher in these price brackets, and it’s harder to recover from legal cases against homes since you’ll have to pay interest while in litigation.
Since it’s more difficult to increase the value of a pricey home, you won’t know for sure how much your profit margin is until you make the sale.
Flipping homes is nothing short of expensive, and often, investors don’t have ready cash. Loans are the most obvious way to get the funding for your flip, but when there are several types of loans, you want to get the one that works best for your project.
Hard Money Loan
Although you might want to finance your fix-and-flip with hard cash, the interest rate can be three times as high and even include an upfront fee. These loans are much better for experienced flippers, but the pro of this loan type is that the bar is lower so more people qualify, funding comes through in as little as two weeks and can be the right loan for a property in poor condition.
Cash Out Refinance Loan
With this loan, you’d refinance a property you already have and use its equity to finance a new property. The perk of this loan is that there are no restrictions on how you spend the loan, but it’s considered a first lien, which means the original mortgage must be paid before you can actually get out the equity.
Home Equity Line of Credit
If you want a loan that works more like a credit card than hard cash, a home equity line of credit is for you. With this loan, you’ll get a credit line that’s determined based on your existing home, which can be taken out on top of the mortgage you already have. Most home equity loans of this type don’t have restrictions on how you spend the money, but you usually can’t take out a loan on an investment property.
Investment Property Line of Credit
This loan is fairly similar to the home equity line of credit, except that you can take out a loan on an investment property. Investment property line of credit loans also don’t restrict how you use the money, but you will have to create a tentative outline so the lenders understand how you plan to use it. Like home equity loans, investment property lines of credit can also be used like a credit card and are assessed based on the value of the property you already have.
When you have to close on a home fast, that’s when you get a bridge loan. Like the bridge it’s named for, this type of loan helps an investor cover their financial bases while purchasing one property right before selling another. However, with this loan, you can’t completely rehabilitate a home as these transactions are usually approved for quick flips.
Permanent Bank Loan/Online Mortgage
Permanent bank loans are for buyers looking to buy long-term residences occupied by the owner, but they can also be used to purchase investment properties if the home is in good condition. If you’re planning to flip a home further in the future and don’t need to close the house right away, this is a good option for homeowners who don’t want to pay for quick money.
Although it may not immediately come to mind, real estate crowdfunding is on the rise, especially with companies like Fundrise, where expanding your real estate portfolio can take place entirely online.
Sourcing Potential Properties
When you first get started with fixing and flipping, you might not know where to source properties or how to start. But with a little digging, it’s not as complicated to find good properties as you might expect.
Here are several places to source potential properties.
Multiple Listing Service (MLS)
This popular real estate broker database compiled by real estate brokers is only available to licensed realtors. Using the system, realtors can spot properties within their geographic area without having to search for them online. Studies show that houses sell faster through this system.
When homes are up for foreclosure or simply going in an estate, auctions can be a great place to get homes at a low price. Your county will share the listings several weeks before the auction, but you won’t be able to tour the house before buying. This means you’ll often have to buy houses sight-unseen and hope for the best.
Before you go to an auction, make sure you do an analysis of how much you can spend and which properties you’re interested in. You’ll have to come prepared with 10% of the purchase price or you may lose out on the home. But you’ll find it difficult to finance houses bought at auctions because lenders often want walk-throughs and appraisals before closing, and this won’t’ be possible with auction homes. Only buyers with cash will win out at these events.
Real Estate Investment Groups
Networking is your friend when you’re a real estate investor. Whether you join a real estate investment group regionally or online, you’ll get the chance to build connections, professional development resources, and a network of professionals who may just have a home to get off their hands. Websites like Biggerpockets.com and groups on Facebook and Linkedin can be a great place to start, especially if you’re looking for meetups.
It might seem incredibly old-fashioned to comb through the newspaper, but that’s exactly what makes it a great strategy. Chances are, your competition doesn’t subscribe to the newspaper and you may hear about different homes than other investors by taking the time to look. Still, it’s not a good idea to rely on the classifieds as a sole strategy, as you’ll have more luck finding homes online.
One of the easiest ways to find homes without having to do the legwork is keeping track of the market through listing websites. Get on a solid roster of newsletters and check them regularly for new updates, as listings will pop up daily.
Whether you’re a wholesaler yourself or a one-at-a-time fix-and-flipper, talking to other wholesalers to check out their inventory may be a good way to find out about listings that aren’t available to general buyers yet. Although you’ll have to pay a fee to the wholesaler if you go this route, you’ll save some time and get a house to flip fast.
It pays to have an attorney in your corner, and not just when you’re in litigation. If you have an estate attorney you can tap for leads, you might have the chance to be connected with creditors who want to sell fast.
When you find yourself primarily selling property in a few specific neighborhoods, it could be beneficial to keep up with residents. That way, when they’re ready to sell they know who to call.
If you know construction companies and builders, you may be able to ask them to keep you updated on properties where owners can’t afford to complete flip or keep the property. In this situation, you could become the investor that finishes the project that someone else started.
Preparing a Property For Sale
Once you’ve got the flip in your name, there’s still so much to do before you can sell the property. The inspection may be done, but you’ve still got repairs to tackle. Here’s a list of everything you’ll need to make your property ready for sale. We also encourage you to familiarize yourself with all the different steps involved in selling a property.
Purchase property hazard insurance and wrap up paperwork.
At the beginning of the process, you’ll need to have insurance on the home ready to go. That way, if anything goes wrong you’re prepared. While you’re still closing on the house, do as much as you can to line up paperwork, settle outstanding debts, and register for utilities.
Make the plans.
Although you may have bought a home with a general vision in mind, now is the time to think about what the home actually needs. Since you’ve already done an inspection, you know if the home has superficial issues, but use this time to get professionals to assess the plumbing, air and heating, and stability of the home. Think about the look and style you’re going for in the home and stick to it when you make a list of design features.
Bring in the architect.
You may have ideas about how you want the house to look, but don’t skip the step of bringing on an architect. They’ll help you draft plans that will show you what the home will look like after renovations and what buyers want to see in homes.
Schedule contractors and get on the same page.
This is when it comes in handy to have a dedicated team of contractors in your corner. Make sure the contractors you want to work with are available in the time window required on the project and have a detailed list of specifications for the home. Make sure you budget for surprises because homes can have surprise plumbing issues or leaks when you least expect it.
Check in on the rehab.
After you schedule contractors to work on the home, don’t leave them hanging. Make a point of regularly checking in on their progress and be available for any questions that may come up during the design process.
Get a stager.
When it becomes obvious that the project is coming to a close, start scouting out a stager who can make the home look gorgeous for potential buyers. It may be tempting to skip this step, but trying to style a home on your own isn’t easy. Stagers already have a network of suppliers, warehouses full of furniture, and all the contacts you’d need to make the house look amazing. It may be hard to incur even more costs on the home when you’re keeping your profit margin clearly in view, but you’ll thank yourself later when the home sells.
Plus, selling a home without any furniture isn’t ideal. When a home looks fully furnished, buyers can imagine themselves in the home and justify a higher price tag to match the comps in the neighborhood.
For sellers viewing the home online, it’s important to have good pictures. Hire a professional photographer to take the photos so your listing is top-notch. Don’t skimp on the description, either. Take the time to either hire a writer or dedicate some time to writing a description that stands out among the competition.
Pay the bills and the contractors.
Don’t forget to pay the bills during the process, whether it takes one month or six. And, of course, don’t leave your contractors hanging. Pay them in a timely manner to avoid late fees.
List the home for sale.
When the home is ready, list on all the same places where you regularly look for flips. Get the word out with social media, call and email your network, and host open houses so potential buyers can see what you’re offering.
There you have it: Flipping homes is definitely not as effortless as it looks. You’ll need dedication and a good bit of time to dedicate to your new venture. But with a little elbow grease, a solid network, and some time in the business, you could see success in the fix-and-flip market, too.
About the author: Andrew Schmeerbauch is an avid real estate investor and a Content Director at Clever Real Estate, a real estate startup offering flat fee commissions for home sellers. Visit the Clever Real Estate Blog to find all the latest information for home buyers and sellers.