Fix and flip projects are not for the faint of heart - they’re a big commitment, they can be stressful, and above all else, they require a lot of hard work. For these reasons, people with certain traits tend to be highly successful in the craft - while those who don’t have those skills (and won’t hire someone who does) have a much harder time.
If you’re thinking about investing in a fix and flip, make sure you or someone on your project team has each of the below traits - the success of your investment depends on it.
Fix and flip investment require a high level of patience and tactful planning. The surest sign of an inexperienced flipper is someone who is willing to throw caution to the wind and move on the first property that meets their minimum standards.
Instead, investors should take a much more holistic view of their goals and of the market as a whole. Does the price of this property leave enough room to make at least 10 to 15% gross margin after you’ve accounted for all of your costs? Is the neighborhood on the rise, and is it attractive to potential buyers?
The reality is, perfect properties are few and far between. As an investor, you and your team will need patience to ensure success. Have your business plan fully built out - that way, when the perfect property comes on the market, you’ll be ready to make your move with as little delay as possible.
Whether you’re investing alone or you have a team of professionals at your side, you need to ensure that you have the proper skill set to succeed in the art of the flip.
To name a few, you’ll need:
- Someone to lead construction, keep the house up to code, and get the right approvals on any inspection (one or more contractors depending on the scope of work)
- Someone to handle the legal aspects like contracts and title transfer (attorney)
- A financial partner with experience investing in local properties and proven track record of helping other borrowers hit their goals (hard money lender like Walnut Street Finance)
- A partner in the local government who can help you acquire proper permitting and inspection (varies from place to place, but you can always check your town or city hall)
Many people think they can handle a lot of the above by themselves, especially construction. But unless you have the experience to back it up, this work is best left to the professionals - sub-par work will lower the value of the house, may not pass inspection, and in the worst cases might leave you exposed to legal risk.
If you want your fix and flip to be successful, you’ll need to do your homework. There are dozens of factors that will determine the precise success of your investment, so it’s important to learn as much as humanly possible going into the project.
Here are a few things you should consider:
- What type of residents live in your neighborhood? What’s the average income, age, commute time, family status, etc.?
- What is the average sale price for comparable houses in the neighborhood? Do your research here - and note that if you can’t find any comparable houses in the area that have recently sold, you may need to adjust your expectations or find a new area entirely.
- What is the neighborhood like? Are there schools? Is it easy to get to any nearby urban center? Is most of the construction new or old, or is there a healthy mix?
- Have you worked out all of your financial planning? Do you know the ARV (“after repair value”)?
Knowledge can be your greatest asset going into a fix and flip investment - if you want to maximize your profit, best to leave no stone unturned.
The Bottom Line
Fix and flip investments can be a great way to turn a profit, either as a full-time job or a side gig. When you’re ready to invest, make sure you’re either equipped with the skills you need to succeed, or that you’re ready to build a team of people who are.