There are multiple paths to rehab success. If you watch five different rehab shows you will see five different styles and personalities. What makes the real estate business so great is that you can invest to your personality. When looking at fix and flip deals there are a few things that most every investor looks for regardless of personality. These are the non-negotiables that the deal must contain. Without them they are willing to walk away and wait for the next deal to come their way. Here are the five items you must have on your next fix and flip real estate deal.
- Quick Turnaround. One of the most common themes of real estate rehabbing shows is the need for a quick turnaround. This isn’t just something that is done to create a sense of urgency. This is because time literally is money in the real estate world. Every day you own the property costs you money. You are on the hook for the loan repayment, interest, utilities, insurance and other carrying costs until you sell the property. Most of these expenses are rather minor in nature but as the weeks go by they begin to add up. Another reason why you want to look for properties you can turn over quickly is for the opportunity lost. Most fix and flip investors only have the ability to work on one deal at a time. Between the financial and time restrictions they can’t spread themselves too thin. If your current deal takes three months you will most likely close one less deal a year. Just one or two deals lost over twelve months can greatly impact your bottom line. If the deal can’t be turned around in 45 days you may need to look elsewhere.
- Reduced Purchase Price. With every fix and flip deal the purchase price is essential. You need to be able to acquire the property at a price that allows you to create value and make a profit. There are times when you need to pick and choose your battles but for the most part you should never be afraid to offer the price that works for you. You never know what the seller will accept unless you try. For every one deal that a seller fails to counter there will be five others where you end up getting the property at your price. Once you offer a number it is very difficult, if not impossible, to go down. Always know the demand for the property and just how motivated the seller may be. You would be surprised at just how many properties are sold at a number lower than you thought. Never be afraid of insulting a seller by making a below asking price offer.
- Due Diligence. The goal of any fix and flip investor is to maximize profits while reducing risk. One of the ways to reduce risk is by doing your homework on every property. The minute you let your guard down and assume there are no issues is when you will find yourself in trouble. Unless you are tearing down the property you should have an inspection on every deal. You may be a ten year real estate veteran but all it takes is one property oversight to put a loss in play. Never be swayed by multiple offers that have you waiving contingencies, especially the inspection. Even the best properties can have hidden issues in the foundation or the basement. In addition to property diligence you also need to know what is going on in the market. The demographics of the market have a tremendous impact on buyer demand which impacts the end sales price. There are times when things pop up about a property that are out of your control. Never let a lack of due diligence get you in trouble.
- The End In Mind. It is important that you have an idea of your exit strategy even before you make an offer. Things can always change once you get started but you can’t buy a property and simply hope for the best. You have to have a firm grasp of the scope of your work, your budget, the after repair value and your ideal sales price. You also need to have contingencies in place in the event that things don’t go your way. You should have a number in mind that you can sell the property for in an absolute fire sale as well as a plan if the property doesn’t sell at all. You should understand the rental market and have an idea if renting could be a viable option. The more you know about your exit strategies the better decisions you will make during the rehab process.
- Know Your Budget. You see it on your favorite rehab show all the time. One of the flippers is in a panic because they are dangerously close to going over the budget or they are already there. The reason this is so important is that the minute you go over budget you are behind the eight ball. At that point you need to hope that you can either find other areas to cut corners or make improvements that add value. Neither option is very desirable. If you put the time to formulate a budget you need to follow it. It should be something that you and your contractor discuss before any work starts. It has to be a focus of everything you do. The better you know and follow your budget the better chance you have at being successful.
If you focus on just these five items alone you will have increased success on your next fix and flip deal. There are other important areas but these are the five most important.
