The 10 Essential Considerations to a Successful Flip!

While house flipping can indeed be very profitable, it has been glorified, and candidly, a bit dumbed-down through the wide variety of TV shows on the subject. The reality is that flips have a lot of moving parts, including the purchase, the financing, the remodel, and the sale. A mistake, or a poor estimate, on any of these elements can cause you to lose money. That said, flips can be an exhilarating and a profitable endeavor when approached thoughtfully and analytically. From selecting the right location, to running an effective remodel, to finalizing the sale, every step matters to ensure you will turn a profit. Here's 10 considerations to navigate the complex process of house flipping effectively, and profitably!

1. Location and Timing: Choose Wisely

The success of a house flip can often depend on its location and the timing of the sale. Your odds of success increase if your target property is in a neighborhood with a high price/sqft and low days on market. Buying low, in a high price/sqft neighborhood increases your profit opportunity. Low days on market indicates strong local demand and the likelihood of a quick sale. Timing your flip to coincide with peak buying seasons in these areas can also help you sell your property faster with an increased probability of multiple offers. Which, in aggregate, should help increase your overall return.

2. Choosing the Right Property

Look for properties that are typical of the neighborhood and ideally have at least three bedrooms and two bathrooms. These types of homes appeal to the broadest range of buyers. Avoid properties that could end up being the most expensive in the neighborhood or are an oddity for the area. Try to choose properties that require manageable renovations — those that are extensive enough to add significant value but can still be predictably estimated and completed. Certain remodels can be overwhelming and potentially take much longer than a typical flip. As the scope and timespan of a project grows, so does the variability and risk. Moderately scoped remodels are your best bet.

3. Accurately Estimate Costs and Sales Price

Being accurate, and conservative, in all of your estimating and budgeting is crucial. You need all three of your key estimates to be accurate, or at least conservative, for you to ultimately make your expected profit. These estimates include:

i. Repair Costs: This is the expected cost for your remodel including all labor, material and management costs

ii. Holding & Selling Costs: Often forgotten in your estimates are the costs to hold the property (financing, property taxes, insurance, utilities) as well as cost to sell the property (realtor fees, closing costs, contingencies).

iii. After Repair Value: The ARV is an estimate for your ultimate sales price.

These estimates will guide your investment decisions and help manage your financial risk. If you accurately estimate all 3 of these items, you dramatically increase the likelihood that you will achieve your target profit.

4. Buy at the Right Price

It is often said that for flips, profit is made when you buy, not just when you sell. You will want to purchase the property at a price that leaves ample room for renovation, holding, selling costs and profit without exceeding your estimated sale price. The larger the gap between purchase and sales price, the more potential profit you may realize. If you do a good job estimating your costs and potential sales price,in step 3, this should help you accurately determine your maximum affordable purchase price.

5. Choose a Good Title Company

Often ignored on TV and in many REI books is the importance of having a great title company and/or real estate lawyer. A reliable title company or lawyer will ensure the property title is clear of any encumbrances or issues that could complicate your purchase, and eventual sale. Ensuring a clean title when you purchase the property will prevent potential issues when you are ready to sell the property to a retail buyer.

6. Get the Right Financing

Most flips require some sort of short-term financing to implement. It is critical to use financing that makes the project viable. Most short-term financing options have relatively high fees and high interest rates. These financing costs can make or break a project, especially if the project runs longer than expected. It is critical that you shop around for the best terms, and you completely understand all the associated costs and terms of your loans to avoid any surprises that could cut into your profits.

7. Remodel Efficiently and Accurately

Stick to your scope, budget and timeline as closely as possible. Avoid the temptation to over-remodel; instead, focus on making necessary improvements that will increase the property's market value without over investing. Focus on repairing key structural items to make sure you have a solid foundation and then use inexpensive, but attractive finishes to attract buyers. That said, make sure you plan for surprises and have a reasonable contingency budget (10%-15% of your total remodel budget).

8. Hire the Right Contractors

With a good, trusted crew of contractors, the remodel phase can often go smoothly and quickly. A bad crew can make a project feel like a complete nightmare. Employ trustworthy and highly recommended contractors who can commit to your timeline. Ensure you have a detailed scope of work and firm quotes to prevent budget surprises.

9. Use the Right Realtor

Flipping a house is like a 3-legged stool including 3 key phases; the purchase, the remodel, and the sale. The sale typically gets the least attention in most real estate books and classes. We recommend investing in a top-notch realtor. Cutting corners by using an inexperienced realtor in order to pay a discounted commission can be tempting, but a skilled realtor can maximize your property's visibility and attract the right buyers, often at a better selling price. An experienced realtor can also save you a lot of money through superior negotiation skills and by helping you manage other issues with the buyer including repair requests and other contingencies.

10. Get it Sold

Some investors get stuck at the end of a project because they want a certain sales price, to ensure a certain amount of profit. Or they may decide the buyers are being unreasonable with their offer or their repair contingency requests. Don’t get emotional or attached to a specific outcome! Be flexible with the sales price if necessary to move the house. Understand that holding onto the property for too long can increase costs significantly and there may not be another offer coming if you reject the one you have. Make reasonable concessions to expedite the sale and try not to take negotiations personally. Also, be sure to pick the right buyer. In a multiple offer situation, you may get a lower price offer from a more qualified buyer and a higher offer from a less qualified buyer. There are times when going with the lower offer may be a better option than rolling the dice with a buyer whose financing could fall through.

Flipping can be highly profitable if you can manage all the complexity of the many steps in the process. If you can adhere to these steps and guidelines, you can navigate the complexities of house flipping with greater confidence and increase your chances of a successful and profitable flip. Remember, in real estate investing, precision and preparation are just as important as the execution.