Flipping a House? Plan to Face These Common Challenges

Fix and flip is one of the most common real estate investing strategies. In fact, that’s what many people first think of when they consider real estate investing. If you watch trendy shows about flipping a house, it looks easy. However, they don’t show the real behind the scenes process.

Real estate investors need knowledge and skill to navigate the details of house flipping. At the end of the day, the goal is to make a profit. You need the right strategy to ensure reach your desired bottom line.

Be aware of common challenges real estate investors face with the fix and flip process. Even with potential risk, fix and flip makes a great option for real estate investment.

Common Challenges with Fix and Flip

Finding the Right Property

When flipping a house, not every property works well. You don’t want to have to wait for the property to naturally appreciate over time. Therefore, locate a house below the market value for the best results. Most homes listed below market value need repairs or updates. Also, identify up and coming neighborhoods with potential to grow.

A few options for real estate investors to locate a solid property for a fix and flip include:

• Probate properties
• Foreclosure lists or auctions
• Short sales
• Tax lien properties

Purchasing in a Profitable Price Range

With a fix and flip, stay within the profitable range. Consider the market conditions and the home’s market value to develop your initial offer. Then know the highest amount you can reach in negotiations before you must walk away. You don’t want to end up with a property you can’t make a profit on.

Look at the comparable home values of similar houses in the area. Also, calculate the costs for repairs, including materials, permits and labor. Then, determine what you will list the home for before you decide whether it’s a smart investment.

Also, consider paying for an appraisal, which provides the estimated current value of the home. Don’t lose sight of the main objective, which is profit. Stay away from properties without short-term growth potential.

Funding Options

It takes money to flip a house. You need to access funds to not only pay for the property, but also fund the repairs. The traditional route with a mortgage provider, in most cases, require a higher cash down payment for real estate investment.

Other options include using your own cash or profits from a previous investment. Plus, partners and other investors may want in on the deal. There are creative financing options available to locate funds for your next fix and flip investment. But, it does take effort to locate them.

Building a Trusted Network

With fix and flips, you need a team in place to manage the project efficiently. Even if you are planning to do much of the work yourself, many projects require specialized talent. One of the best ways to ensure project success is by tapping into your network of trusted professionals.

Whether you need funding, an appraisal, a home inspection or repairs, a strong network provides those contacts at your fingertips. When flipping a house, you must depend on contractors and suppliers to meet their obligations for the schedule and budget. To start developing your network, create a list with roofers, electricians and plumbers. Read reviews and ask your peers for references.

If you plan to grow a vibrant real estate investing business, a good working relationship with other professionals is key. When you maintain a positive attitude and good reputation others will want to be a part of your network. Remember to practice patience. As your business grows, so will your network.

Staying Organized and On Track

All types of real estate investments require organization to keep the deal on track. This is especially important with fix and flips. One option is to use a software solution to manage the project. Map out all the details for rehab and create a timeline so all aspects of the project flow smoothly.

Also, good project manage helps avoid exceeding your budget by eliminating mistakes and missteps. Poor project management may lead to increased costs for services and materials due to late fees or rush projects.

Market Volatility

As we’ve seen recently, even strong economics aren’t invincible. However, real estate stands the test of time. In the short term, the real estate market often experiences volatility based on larger economic impacts and local shifts in value. Fix and flip focuses on the short term. The goal with a flip investment strategy is a quick turnaround.

Reduce your risks by understanding the local market. Research market reports and real estate predictions for the next few quarters. Research and knowledge help investors make an informed decision for each deal. Yet, you want to ensure you don’t over leverage yourself in case the market changes during the project.

Consider your backup plan. If you can’t sell the home quickly or for the right price, what will you do. For example, the property might work well as a short-term or long-term rental. Good business planning limits risks and prepares for uncertainty.

Fix and Flip Still Makes a Solid Investment

As we face uncertain times, the fix and flip investment strategy continues to offer a path to wealth. During times of economic downturn, people often need to downsize and find a new property in a lower price range. Fix and flips meet this need. It’s important to understand the challenges for fix and flip. Yet, real estate investors still find this strategy effective for business growth.