Are you thinking about investing and maybe trying to “flip” a property? First, let’s define a “flip”. When you look for and find a property that you are going to buy and renovate and then immediately sell, that’s called a flip. It’s a fast investment strategy that happens in under 12 months, barring any issues. While it can be easy enough to find an interesting property to invest in, finding one that you can do for your first flip is an entirely different matter.
House Flipping Mindset Strategies That You Need to Know
For many of us, understanding how to look at a property that is going to be flipped is something new. It’s not a way that most people look at a home they are interested in buying.
The investor mindset determines what is happening in this particular market in terms of price. They then compare this house to others that have sold in the market in “as is” condition. Next, an investor will decide what work is needed to reach the best possible rate of return and what would be the anticipated sales price at that time.
Once an investor has determined what the sales price is, they can calculate what is left over for profit. And don’t forget, you’ve got to factor in some amount for issues in a property that you are flipping, because there is always at least one surprise that you didn’t budget into your numbers. A little extra to cover that ensures your profit stays where you want it to be.
What to Consider
Here’s just some of the questions that you might want to consider and determine for any property that you are considering as your first flip:
- What’s the asking price for the property?
- What have properties in the neighborhood sold for over the last 6 months? Past year?
- Is the area increasing, decreasing or stable in terms of property values?
- What are the top 3 to 5 comparables (if available), to this property? And what did they sell for? Were they renovated or in similar condition?
- Is there work this property needs to be at least as good as recent comparables and perhaps a bit better? What is that going to cost to complete and how long will it take to complete the scope of work? Basically trying to determine a budget for the project.
- What type of financing is needed? Are there costs of obtaining the financing?
- What are the holding costs? And that includes the monthly principal, interest and fees. It also includes costs that many real estate agents don’t consider such as taxes, insurance, and utilities.
- Once all work is done and the property is under contract, what are the selling costs that need to be factored into this transaction?
Only after you have this data can you really, and effectively, analyze the property and determine if it’s worth moving forward.
Determining What the Property Is Worth to an Investor
Only after the investor mindset has all of this data, will they calculate what they might be willing to pay for a property. And this is just a basic math calculation.
You start with the list price.
Then subtract out all of the costs that are needed to bring the property up to current “market value”. Market value is simply doing renovations and repairs to your property so that it is comparable and has the finishings and features that most of the properties surrounding it already have.
The next step is to add in a profit margin of 35-50%. That’s the “standard” range in the real estate investing world (we discuss this in this blog post HERE).
And finally, depending upon your market and property, subtract out a contingency of 5-10% of the purchase price for those “surprises” that always happen in a real estate transaction.
Once you’ve taken these steps, you will then have an approximate price that you might pay for the property. And then you can compare that to what’s being asked for the property or what you’ve been told a property “ought to sell for” and see if it’s a fit for you.
How to Find Properties to Flip
For many, the BIGGEST question is how to find properties for your first flip? It seems like everyone else is finding an awesome gem in just the right neighborhood. Or maybe you hear, “My brother-in-law heard from his boss that his neighbor’s cousin on his mother’s side had this property….” Well, yes – these types of deals can and do happen. But there are also some basic ways that you can get started as well. And they don’t have to break your bank in the process.
We’ll cover many other lead strategies in detail in another post, but for now, here’s some of the most common, affordable and popular strategies to consider:
Bandit signs are an easy way to get people calling. They are small signs placed on street corners in neighborhoods. Usually they start off with “Sell Your Home for Cash” to attract buyers that want to sell and sell now.
There are several tools available to help you define and determine the best targets for a direct mail campaign. Done right, this method can also help you get your phone ringing with potential sellers of properties.
While everything is moving online and electronically, old fashioned business cards still generate a ton of business. Hand them out to everyone you see asking that they give it to anyone they hear that might be interested in selling their home. You’ll be amazed at the results in finding your first flip.
There’s so much to cover on this topic! But the most important thing to know is that it’s taking action that’s going to help you get the results that you’re looking for.
And if we can help you on your first flip, please let us know. We’d love to discuss your next deal with you and put together the financing you need to make it a success. Just give us a call at (512) 220-9916!