Ever walk into a new home and wonder, who thought this was a good idea? Green shag carpet, everywhere! (Read more to see picture proof, we're not kidding.) From structure to design, there's a lot that goes into building, or even fixing and flipping, a home. This is a big investment, possibly one of the biggest in your life! One you can't be passive towards. Everyone wants to see quick returns on investment, but you won't get there without putting forth the time and effort. So take it from some seasoned real estate investing pros, advice they wish they had before their first real estate investment. Hopefully their lessons learned will help make your next real estate journey much smoother...
“Apply the 1.5X Rule: Take the number you think you need to purchase and fix the property and multiply it by 1.5” - Bobby Montagne, CEO of Walnut Street Finance
Unexpected costs pop up with construction, permits, etc. and it’s always better to have more money than you need instead of the cash drying up and stalling the deal. Always start with a plan and make a budget. Include a slush fund to your budget that could cover unforeseen circumstances and overages. Even with the best thought out budget, incidentals can happen and it's best to be prepared.
“You make the most money when you buy value-add deals.”
- Joe Fairless, Best Show Ever
Value-add properties may have operational issues and require physical improvements, either due to neglect or owners don’t have the capital to make improvements. Grabbing these properties at a great price, fixing them up and strategically selling them can yield big profits.
“I wish people would have stressed the importance of having a good mentor BEFORE you invest” - Bill Manassero, Old Dawg’s REI Network
Just like most things in life, having someone who has experienced it before to guide you through the journey is always helpful. Luckily for real estate investors in the digital age, resources are plentiful! Bill Manassero is one of them!
As promised, here's a picture of the green shag carpet we mentioned earlier. This is an actual picture of a home undergoing renovations to be flipped. Someone considered it a great idea (and maybe it was when the house was built for the person who lived there previously!), but if you're looking to fix and flip, be aware of design trends versus practicality and longevity of said trend. You want to be neutral enough to appeal to a larger population. Do your homework!
“To do cash flow instead” - Mike W., Paradise Valley, AZ
Cash flow are income-producing properties such as properties that you purchase and rent out. They are great because they can generate a steady “cash flow,” as the name implies. However, choosing to do this also depends on the market as the return on monthly rent may not be an attractive option when you consider profits that can be made on the sale of a high-end property in a top neighborhood.
“It will take longer than you expected, just be prepared for that” - Brian P., Montgomery, NY
Manage your expectations. There will always be unforeseen factors that can prolong the construction, renovation or sale of your property. It’s better to take the time to do it right, than to just get it done.
“If possible, avoid inheriting tenants” - Michael A., Watertown, NY
Inheriting tenants can be problematic because you may not get the full story on the timeliness of payments or income. The seller may paint a rosy picture about the existing tenants and forget to disclose existing issues.