Criteria you can use when it comes time to select your next fix and flip project
If you are new to the fix and flip project or even if you’ve got a few under your belt, you’ll want to check out these tips to help make your next project your best project. Especially in this market, where inventory is low, and prices are rising, FOMO (fear of missing out) can cloud one’s judgement causing you to rush into a project. In a market where multiple bids and lots of competition are common you may have vowed not to let your competitors ‘steal’ your deal. But if you don’t do your homework and stick to your guidelines on what makes a good project you can end up rushing into a property that is marginal – which typically means more time and lower profits.
I’ve done my own fix and flips and provide loans to real estate investors, so I’ve seen my fair share of the good, bad and ugly when it comes to this type of project. To help you know which property and what improvements will make a great fix and flip project, read these 9 tips.
- Improvements should appeal to your target market and fit with the neighborhood: Don’t go trendy when it comes to fix and flip projects. Leave personal preferences for your own home. If you’ve been in this business any length of time you know what I’m talking about. Trends in colors and materials come and go and personal tastes in home décor vary widely. Just because you think a certain color looks good or you can get a real deal on a ‘unique’ material doesn’t mean your prospective buyer will appreciate it. Check out homes in the neighborhood to see what styles are popular. Light and bright and neutral is always a good formula.
- Don’t get carried away with improvements: You aren’t going to live here so you don’t have to put in top of the line materials. This goes for inside and outside improvements. I’ve known a few investors who have great (and expensive) tastes and others who have perfectionist tendencies. They have a hard time separating what they want for their home from what makes sense in a fix and flip project. You always want to keep your ROI in mind as you decide what improvements to make and what materials to use.
- You can often do well with lower end materials but don’t skimp on the quality of work: Make sure the improvements you do make are of professional quality. If you can’t do it yourself, hire someone who can. It is worth it in the long-run. People know shoddy workmanship when they see it. Poor quality will make the property harder to sell, it will take longer to sell, and you will get less. If a potential buyer sees poor quality work on the visible improvements, they will immediately question the quality of things they can’t see and likely pass on your property.
- Avoid properties with roof issues – these can be especially time consuming and expensive: If you find a property that looks great on every other point, but has roof issues – be wary. Most of the time roof issues end up being more involved and costly than what was originally anticipated. This eats into your profit not to mention the added headache. The bottom line – avoid if at all possible.
- Avoid properties with a bad layout: Trends have shifted in terms of what type of layout people want. Buying a property with a funky layout will cost you. It is not hard to find an older property that started with a bad layout and then was made worse by funky add-ons. Fixing the layout to make it more appealing will cost you time and money that you may not be able to recoup when it comes time to sell.
- Find properties in locations that are appealing to your target market: Whether your target market is young families, working professionals or empty nesters, make sure the neighborhood will offer the amenities they are looking for. Make sure to check out schools, transportation, shopping, commute times, recreational facilities and more. These will make a difference and help you market your property when it comes time to sell.
- Find properties that will resale near the area’s median – after improvements: Properties selling near the area’s median will appeal to a wider audience and sell faster. Know the market and then pay a purchase price and make improvements that will bring your property close to the median.
- Rule of thumb – you should pay 80% of the market value minus your rehab costs: If you are a contractor – adding footage to the property is usually a good strategy. If it is an up market you can pay a bit more, in a down market, pay a bit less.
- The property should make sense when you look at your entire portfolio and pipeline: Look at what the market is doing, and estimate how quickly you can REALISTICLY get the property ready to sell. If you are working on multiple projects – have a balanced portfolio. In an up market there is a tendency to buy more expensive properties, but you don’t want to get stuck with a bunch of higher end properties when the market takes a dive.
Do you have a project that needs Private Money financing? If so, please drop me a line! We’re ready to lend and help you grow your business.