5 Important Factors To Consider Before You Start Flipping Houses
Posted by JD Esajian // January 9, 2017
Being a house flipper is very much like running a separate business. Even if you know what you are doing it often takes a full time commitment to be successful. The perks of flipping houses are plentiful but you need to know exactly what you are getting into before you get very far. Without knowledge of the business and a grasp of the process you will end up working harder and ending up with a smaller piece of the profits. All it takes is one oversight in one area to cause a setback that can be difficult to overcome. Before you dive into the real estate flipping business here are five important factors you need to consider.
- Marketing Matters. Where do you plan on finding your next deal? As much as you may feel you are ready to get started you need deals to work on. Rehab and flip deals are not the same as other deals you may see in your market. To maximize your bottom line you need deals you can obtain at a deep discount. This could mean finding deals through short sales, foreclosure, divorce attorneys, probate or any other strategy you can think of. It doesn’t matter which marketing option you employ as long as you do something. Good rehab deals will not just fall on your lap. Whether you plan on working with local wholesalers or starting a mass direct marketing campaign you need to do something to generate deals. The amount and style of marketing you do is a good indicator on the type of deals you will work on.
- Balance Your Portfolio. As you get started flipping houses you need to consider your goals. Every flipper wants to net as much as possible on every deal. The question is what are you going to do with your profits? Are you using them to supplement your full time income? Are you going to build your real estate business and look to purchase other properties? If you do purchase property are you looking for more flips or long term rentals? It doesn’t do you any good closing a deal if you are going to recklessly spend your profits. The best flippers have a balanced portfolio. For every three or four flips they do they reinvest a portion of the profits into a new rental property. Even if you aren’t comfortable with being a landlord and collecting rent you need to balance out your portfolio. You can easily hire a property manager to take care of the property. The cash flow you receive can offset any lulls you have in your rehabbing business. A balanced portfolio allows you to look at different markets and explore new opportunities when they arise. Going from flip to flip without a financial plan is a recipe for disaster.
- Always Look For The Next Deal. Getting a new rehab deal is great! That is the goal for any rehab investor in the real estate business. However it is important not to put all of your eggs in one basket. The reality is that regardless of the struggles you have with the property before you know it you will be done with your current project. Without new deals to work on you will be right back at square one. With any marketing you do you need to keep one eye on the current deal and one eye on the next one. Take some time every week to reach out to new deals and build your pipeline. Here is where you need to have a reliable team in place you can lean on so you can run the business and find your next deal.
- Team Building. To that point you cannot underestimate the importance of building your team. A good team around you can make or break your long and short term success. A good real estate agent can help you find and close more deals. A good attorney will help protect your best interests without wasting time going back and forth. A good contractor will help run your rehab keeping an eye on the budget and juggling several different personalities. A reliable property manager will run your rental property so you don’t have to worry about any potential tenant issues. By spending more time finding the right people each rehab will be as stress free and easy as it can be.
- Time Commitment. Flipping houses requires a large time commitment. If you have a full time job it doesn’t mean you need to quit but you should be ready to take on a heavy workload. There are dozens of smaller steps that need to be accomplished before you can move onto the next one. Everything from securing financing to closing the deal to pulling permits can be a hectic and time consuming experience. Once you acquire the property you need to have everybody and everything in line if you want to finish your work in a short timeframe. When you are finished your property typically will not sell as quickly as you anticipate. There is usually a period of lag time between listing and the actual sale. From start to finish the project takes time and the amount of work can be quite consuming as well. You need to be willing to balance the project with whatever else you have going on in your life.
Flipping houses is a great way to make a living but you need to do it right. Follow these five tips if you are considering getting starting rehabbing real estate.