I have flipped almost 200 houses in my career, and I am still learning the business. House flipping can be an amazing business, but it can also be very risky and tough to succeed in. Over the years, I have learned quite a few things that keep me successful and making money. House flipping is nothing like what you see on television, and a lot of people go into the business thinking it is completely different than what it really is. Here are some tips that will help you become successful!
1. Don’t Stretch Your Numbers to Make a Deal Work
A lot of house flippers (me included) have paid too much for a flip because we needed a deal, were bidding against someone else, or our gut told us to. Some of my biggest blunders came from houses that I paid too much money for, and I knew it. If you know what you should pay for a house, whether it is the 70 percent rule or some other metric, stick to those numbers, especially in an auction setting.
The video below goes over these tips as well!
2. Be Careful With Massive Remodels
I can say my biggest mistakes have come from taking on projects that were too big. I see big profit margins and think there is no way this could be a bad deal. 18 months later, 200% over budget, we still haven’t sold the house, and I see how it could be a bad deal! The problem with massive remodels is they take a lot of time and resources and can burn out your contractors. I have lost a few contractors because we both took on too big of a remodel.
3. Do Not Overprice the Property
When you have a project that goes over budget (almost all of them will, don’t worry), do not make the problem worse by overpricing the home. We have the instinct to try and get more out of it to make up for our mistakes or uncontrollable events. House flippers will make it worse by overpricing a home, having it sit on the market, and then winnd up selling for less three months later than if they would have priced it right to start with! I have my project manager price my houses so that I don’t give in to to the overpricing urge.
4. Visit the Job Site Often
I once hired a contractor to work on two flips at once. We had just used him on a project. He was an ex-builder, and everything seemed to be going great. The project we used him for was about 30 miles away from me. I was super busy and did not go to that house for a month, but he said everything was going great. I visited the house that was closer to me, and he was working on it—what could go wrong? Eventually, I made my way to the house that was farther away because things should be close to being done. I got there, and no work had even started! The contractor claimed it was his workers’ fault, and it was obvious he had not been there either. I go to my job sites about once a week now. if not more often. to make sure things are getting done!
5. Account for All of the Numbers
When watching house flipping shows, you may notice that they leave out most of the expenses that come with flipping houses. They do not account for financing, carrying costs, or even selling costs. I can even get caught up not knowing how much everything is costing me at times. As a house flipper, you must know what all the costs are because that dictates how much you can pay for a house. We may not believe how expensive everything is from financing to repairs, but we have to be realistic. Make sure you know what the repairs, insurance, taxes, interest, maintenance, selling costs, and buying costs are.
6. Don’t Blindly Trust Others
When you start flipping houses, a lot of people will tell you how the business works. Many accountants, lawyers, lenders, and agents will tell you what to do, and most of them will have never flipped a house! Do not blindly listen to what kind of financing to use, what types of houses to buy, or what is a good deal. You need to figure that out on your own because the chances are most people telling you how to run your business have no idea what they are talking about.
7. Assume Everything Will Cost More and Take Longer
When flipping houses, I like to think I can predict when a house will end up selling and how much money we will have into it. I learned a long time ago that I cannot accurately judge this figure. I assume that the repairs and other costs will be at least 20 percent more than I think they will be, and I am usually wrong—they are usually even higher! I also assume things will take at least 2 months longer than I think, and I am usually wrong on that front as well. Remember to plan for things to be much more expensive and take much longer than you think!
8. Just Because Other Investors Are Paying More Doesn’t Mean You Should
With higher house prices and more competition for house flippers, many people are paying more for investment properties than a few years ago. I have seen myself pay more for properties as well. When I say I pay more, I mean I have smaller profit margins than I have had in the past. While I want to keep flipping houses, I do not want to overpay. It is very easy to go over budget and lose money on a flip if your numbers are too tight. There are many ways to find deals on flips so if you are not finding low enough prices. Try looking for new ways to find properties.
9. Constantly Refine and Improve Your Business
I have been doing this for a long time, but we are constantly looking for better and cheaper ways to do things. I have tapped into new financing, looked for new ways to manage contractors, tried new marketing techniques, met new wholesalers, and tried new incentives for my team, all in the last year! As soon as you think you have it all figured out and you do not need to refine the business, you will find yourself in trouble or not getting any deals.
10. Time is Money
When flipping houses, it costs a lot of money each day you hold a house. On some projects, you may be spending $100 a day or more on financing and carrying costs. The sooner you sell the house, the more money you will make. It is easy to let a project slide or not stay on top of deadlines. While flips usually take longer than you expect, that does not mean you should not be working hard and pushing to get things done faster. The longer you hold on to a flip, the great exposure you have to a changing market as well. If prices are going up, it is not such a bad thing to hold on to a flip longer. However, if prices are decreasing, holding on to a flip too long can be a disaster.
A lot of new flippers want to repair the houses themselves to save money. The truth is the extra time it will take most investors to repair the houses as opposed to using professionals will negate any cost savings. While you are busy working on the house, you are not looking for more deals or refining the rest of the business. One of the biggest mistakes I have ever made was working on a house flip myself thinking I would save a ton of money. It was my worst year ever!
There is a lot more to go over when flipping houses, but these are the major issues I see many house flippers deal with. It can be a great business, but it can also drag you down very quickly if you are not prepared! For more information on flipping houses, I have two books on the subject: Fix and Flip Your Way To Financial Freedom and 101 House Flipping Tips.