Flipping houses is a lucrative business that’s become more popular over the last few years. According to ATTOM Data Solutions, in the first quarter of 2020, the average investor was making $62,300 in gross profit from each flip.
Being successful in the industry isn’t as simple as buying a cheap house, fixing it up, and then selling it. There are some intricacies and lessons you learn along the way to boost your profit margin.
Whether you’re just starting out as a real estate investor or if you want to boost your return on investment, you’ve come to the right place. Our guide to flipping houses highlights the top three things you need to know to be successful in the industry.
1. Buy at The Right Price
The key to getting the biggest return on investment is buying the right house at the right place, at the right price tag. When buying a home to flip, there are several factors to keep in mind, including:
Condition/age of the home
If you’ve gone through the process of buying, flipping, and selling a home, you know just how time consuming it is. Making time to stay on top of new houses hitting the market can be impossible some days. And then ensuring that you’re getting the best deal requires even more time and effort.
The best way to buy a great house at an even better price is to buy from an investment property wholesaler. These companies work as full-time property investors and know the ins and outs of finding hidden house deals.
The best part? Working with an investment property wholesale can save you 30-50% off retail value. These companies find all the best properties that are listed as fixer uppers, foreclosures, or properties in distress.
In turn, you get leads and an early head’s up so that you can plan accordingly. Buying a property well below retail value is a huge win.
2. Find the Right Contractor
After purchasing an investment property, the next step is to find the right contractor to complete all of the necessary work in the home. Making the house livable and improving its curbside appeal are crucial steps in making a profit.
While you may be tempted to reach out to the first available general contractor in your area, this is one of the biggest mistakes that you don’t want to make.
Just as you want to get the best deal on the property, you want to take the same amount of care and diligence when choosing a general contractor. It’s important to partner with a contractor that has the same investor mindset as you.
Look for a general contractor that has experience in working with investors and not just homeowners. This type of contractor understands the importance of being cost-effective. They’re also more likely to understand which projects are must dos versus which ones are nice to haves.
You don’t want to hire a contractor that cuts corners and does sloppy work. At the same time, you also don’t want one that goes overboard. Working with a contractor that wants to update every little thing is a recipe for disaster. This type of contractor will cost you tons of money upfront, which means a lower profit once the house sells.
Before agreeing to work with a general contractor, ask questions such as:
Are you experienced in flipping houses?
Which investors have you worked with?
Who completes the work?
How large is your crew?
Are there any services you don’t provide?
Taking the time to get to know a contractor before hiring them greatly lessens the risk of hiring one that isn’t investment driven.
3. Work with the Right Listing Agent
Once the house has been fixed up and is ready to go back on the market, you’ll want to work with the right listing agent. Just as you took the time to find a general contractor who is experienced in working with investors, you’ll want to do the same when choosing a real estate agent.
Find a listing agent that knows the ins and outs of listing an investment property. While you’ll want an agent who knows the area well and has a proven track record of quick, successful sales, having that investor experience is crucial.
4. Find a Property Management Company
If you don’t want to sell the investment property, another option is to use it as a rental. The BRRRR Method is one of the best ways to grow and build profit as a property investor. The method involves:
Buying a home
Adding value by rehabbing it
Renting it to build a steady stream of cash flow
Refinancing the mortgage to improve your financial position
Rinse and repeat with other properties
As a real estate investor, chances are that you have little interest (or time!) to manage various rental properties. This is when having a trusted property management company that is experienced in the BRRR Method can really come into play.
A full-service property management company does everything, to include screening renters, collecting payment, and managing any break/fix requests. These companies also deal with any legal issues and maintain all of the important paperwork.
By outsourcing this work, you can remain focused on finding investment properties so that your portfolio can continue to grow.
Go Forth and Conquer Real Estate Investing
Now that you know the most important steps for successfully flipping a home, you should be more confident than ever. With the right team on your side, you can guarantee a high return on investment along with years of growth and success.
Larossa is proud to be a construction company built for investors. Team up with us, and our arsenal of partners in all of the categories above, and you can't go wrong.