Red Flags and Tips for a Flip
February 3, 2020
Founder and CEO, Tru Realty
When considering whether or not a particular property would be a good “fix-and-flip” investment, it’s easy to get distracted daydreaming about best-case scenarios and huge profits. Less experienced professionals may overlook major warning signs staring right at them, telling them it’s NOT a good investment. It’s a common occurrence for inexperienced “flippers” to overestimate their ability to do rehab work, or just as detrimental to the bottom line, underestimate the cost of repairs.
The main goal of a property flipper is to purchase low and sell higher to garner a profit. Experts in this industry know their limits, look at comps (comparable properties in the area), and understand the qualities of a desirable property. Before signing the dotted line and purchasing what may be your last investment, read through some of the major red flags to look for while you’re in the property hunt.
Local business is not booming. Drive through the nearby downtown or business district at different times of the day and get a feel for the area. If businesses are closing their doors at a rapid rate, it’s a strong sign to look elsewhere. You might get a low price on the property, but your chances of turning a solid profit are slim.
Abnormally low sale price. If the price of the home for the area seems too good to be true, it probably is. There’s likely something terribly wrong with the property and not worth a flip. Even motivated sellers, like those moving for a job, won’t put a house on the market for less than it’s worth.
Unusual seller behavior. If you’re reaching out to a seller to ask questions about the property, generally speaking, they should be polite and attentive. If the seller you’re dealing with seems like he or she is giving you vague or inconsistent answers – run the other way. They’re likely hiding something.
Properties with long periods of vacancy. When a property sits vacant for a long period of time, it becomes susceptible to vandalism and squatters. Sometimes the vandalism is only cosmetic, but other times it can be much worse.
Major repairs. Always avoid properties with foundational cracks, ceiling stains, or other water damage. Unless you’re an experienced home inspector, there’s no telling where the issue stops or starts.
These red flags lay a strong foundation to guide you in finding a property that’s fit for a flip.
After you’ve purchased the property, everyone you know will try to give you advice on where you should spend your money. However, there are a few key pieces that expert flippers know to be true.
Curb appeal is key. A good first impression of the property can go a long way. When the property looks nice from the street, people are more likely to “be forgiving” when it comes to walking through the rest of the property.
Freshen bathrooms. The bathrooms are a good place in the house to spend a little money. When the bathrooms look clean and crisp, it makes potential buyers feel as if they are the first homeowners.
Avoid electrical or plumbing work in the kitchen. If the kitchen does need work, try to keep the original layout as much as possible to keep the cost low.
Don’t over-renovate. When you’re in the property flipping business, you don’t need to flip every part of the home. Talk to a realtor or a mentor and let them help you identify the areas of the home where you’ll find the most value in a flip. The idea is to keep costs low and not to spend money where it’s unnecessary. It’s better to be conservative than dump too much money into a flip.
Keep these red flags and tips at the top of your mind as you set out in the fixing and flipping industry. As it is with any industry or career, it’s best to have a mentor or a network of people you can go to for advice. Don’t be afraid to bounce ideas off of someone you trust – it could be the difference between success and failure.