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7 Principles to Guide Your Fix and Flip Decisions

Posted by Walnut Street Finance Team on Apr 15, 2018

If you're a fan of Chip and Joanna Gaines -- let's be real, who isn't -- you're familiar with their Texas-size success story, but what isn't apparent on the television version is just how hard they work and how much they worried. 

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Home flipping success did indeed seem to come easily to Chip in the early days, but even he attributes some of that early business ease to dumb luck. In "The Magnolia Story," Chip and Joanna come clean about their path to financial security. Despite the hype surrounding their HGTV show, "Fixer Upper," theirs was not a smooth journey, and they both recall times when they could have lost it all.

The truth is that house flipping is risky business.

Minimizing Risk

Although there are no sure-fire formulas for making money in real estate, there are some proven principles. The first is that there is no substitute for local knowledge. Familiarity with growth patterns, pricing trends, seasonal fluctuations, development plans, home values and local government all pay big dividends when it comes to recognizing potential and seizing an opportunity. 

Here are 7 principles to guide your fix and flip decisions:

1. Know your market

Every real estate transaction is unique, and each one must be evaluated on its own merits. Trends are also important. Pay attention to projections, keep records, survey quarterly real estate statistics and keep track of year-over-year growth, development and community changes. Look for a niche market. Neighborhoods in flux -- for whatever reason -- offer valuable insights. 

2. Time is Money

Buying fix and flip property often requires the ability to act quickly. Good deals don't last forever, so having assessment tools and financial resources that allow you to seize an opportunity when it appears is key to success. Then work from a strict timeline to complete the rehab quickly and you'll be in line to reap the financial rewards. 

3. Watch the Numbers

Never assume that a new project will return the same results as one recently completed. Don't take shortcuts when analyzing or estimating costs. Keep your eye on your financial situation at every step along the way; adjust course if necessary to compensate for unexpected overruns. Be vigilant. Be realistic. Keep operating expenses under control.

4. Stay Lean

The most successful fix and flip contractors know that simplicity rules! Overbuilding -- for the house or the neighborhood -- is a great temptation, and it can also spell the downfall of investors. Aim for quality rather than glitzy effect; for function over trendy materials.  Build in contingency funding for unexpected soft costs. Be happy with a reasonable profit margin.  

5. Anticipate the Worst

Know that sometimes things will go wrong during a renovation. There may be unanticipated property faults, delivery delays, bad weather and cost overruns, or the market may slow down just at the time you need a quick sale. Sometimes you can't change reality. But you must cope: Develop backup plans, take a new direction, reevaluate the problem. Be creative. Always keep your options open.

6. Build a Team

Another Chip and Joanna lesson: Work hard and have fun. Whenever possible, be a hands-on participant in your fix and flip ventures. Work to build a knowledgeable and loyal team. Treat everyone with the same respect -- sellers, suppliers, workers, lending partners, real estate agents, building inspectors and customers. Cultivate resources whose knowledge will expand your own. If you're fortunate, at some point they will all be friends.

7. Keep the Faith

Finally, maintain a can-do attitude. You will no doubt face some temporary setbacks, but with perseverance, you will get through them. Learn from your mistakes and be realistic. Giving up never got anyone anywhere.

TINSTAOS

Have you heard that before? If not, learn it and believe it. It's worth repeating until it becomes as familiar as your name. It will keep you on the right path when times get tough and you're tempted to go looking for a real job. 

There is no such thing as overnight success. 

Believe it! But, at the same time, believe in yourself and your abilities. And, along the way, rely on the proven expertise and assistance of financial partners like Walnut Street Finance. We practice these same 7 principles every day. 

Let's do it together. Why not give us a call today?

Walnut Street Finance Team

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