House flipping is a real estate venture that involves buying distressed property or any other at a discounted price, making improvements, and selling it off at a profit. While it may look easy from the face of it, flipping can easily burn your investment if you get in without a strategy and some understanding of the sector.
Treat it as a serious business and not some side hobby if you expect a good ROI by laying out a viable strategy for successful flipping. Here's what you need to do to succeed in faster and more profitable property flipping.
Funding and reliable funding sources are critical to your success in profitable house flipping, especially when starting as a novice. Secure sufficient funds to cover the cost of acquiring, improving curb appeal, and any unforeseen expenses that may pop up after you commit to a property. You may need to make arrangements with a lender for short-term funding to cover costs and hope that you will sell the property fast enough to pay back and make a profit.
Always make a provision for a reserve fund aside from the projected budget. A reserve fund will come in handy when the budget goes burst due to unexpected expenses or the flip sale takes too long to come. It is a bad strategy to look for funding midway in the process, cover all angles before you jump in.
Develop a strategy for finding deals
Don’t just have a knack for finding good deals or believe you do. Create a strategy for finding the right deals. As a successful house flipper, you need to find the right property at the right price and at the right time to maximize ROI.
Your strategy should establish business connections with sources such as auctions, MLS, foreclosures, wholesalers, and short-sale negotiators through a vibrant real estate network. Understand that finding the right deal could take time and always start in a neighborhood you know well. When a likely deal comes up, subject it to the 70% rule to know if it is the right one.
Your skills at deal evaluation will make or break your investment in property flipping. If you fail to make accurate cost projections against the after repair value (ARV), you risk losing your money in this venture. The ARV determines the cost of acquisition, improvements, temporary ownership obligations, transfer, and selling costs.
These calculations are critical to your business success and mean the margin between any profit at all and a loss. Get your math right before grabbing that seemingly right deal.
Move with speed
You are not the only house flipper in the market and unless you move fast once satisfied with a potential property, a competitor will snatch it. Once you decide on a good deal, move with speed to get it under contract and then keep ahead of the clock. Every day after you pay for the house costs you money due to ownership obligations.
Move with speed to rehabilitate the property, get it inspected, valued, and placed on the market the earliest possible. Have real estate experts on call any time you encounter challenges to avoid piling costs and allow a margin of profit.
Identify your niche category in the property flipping business and stick to it. If you choose single-family residences or city condominiums, stick to one and perfect your skills in this sector. That way, you understand the specifics such as likely rehab requirements, costs, suitable contractors, and target buyers.
Put in place risk mitigation measures to avoid running into unexpected expenses. Careful planning and seeking help from professionals can minimize the risk ratio and maximize profit margin.