Thinking about flipping?
June 10, 2023
By P.R. ‘Randy’ Cooney
Arizona School of Real Estate & Business
Home Flipping Realty Shows such as Property Brothers, House Hunters, Fixer Upper and Fix or Flop have fueled the Fix & Flip Business across America. These popular reality shows make the process of locating, purchasing, fixing and flipping a property look very fun, invigorating, exciting, rewarding, and like the best ‘job’ ever! So much so, that in 2021 that 10% of home sales in America involved a home that was “flipped”. Meaning an investor or investor group purchased the property and within months had repaired and/or rehabbed the property to some degree and resold it with the intention of turning a profit. Well, before you give up your ‘day job’ for what seems to be the glamour and glory of real estate fixing and flipping, let’s for the benefit of all raise some yellow flags of caution to make you better prepared, equipped and educated as you consider venturing into FINDING, FIXING and FLIPPING properties.
YELLOW FLAG #1 The Acquisition Cost
Money needed to purchase the property. No down or little down are not easy to come by as often suggested in those get rich-quick commercials. Normally your money as in cash, or someone else’s money, as in borrowed which will add, via interest fees, to the holding costs which also include property taxes, insurance, utilities, etc.
YELLOW FLAG #2 Picking the right properties
You must know how to pick the right property, in the right location, at the right price. A real bonus to have overall market knowledge as to most popular communities that turn quickly due to desirability. Normally condos and patio homes are not as desirable as are single family homes. Also HOA’s with CCR’s add another dimension to consider as far as approvals needed for improvements and/or construction. Needing the vote of approval from the architectural committee of the HOA can impose delays or rules of compliance that will burden your project.
YELLOW FLAG #3 Allocation of Time
Time needed is the most underestimated part of the process. The more there is to do the more time needed to do it. Also, you are often depending on others to be reliable and timely. As they say “__ __ __ __” happens! So count on unexpected and often out of your control time delays. Often times you cannot start one thing until another thing is completed, meaning a ‘domino-effect’ of delays. Another factor of time needed is location of property to your home of work. You will be making multiple trips and being in close proximity is a real plus! Being an hour or more away will cost you in time and ultimately money. A good rule of thumb is if you are estimating six weeks for completion of all repairs and upgrades, be OK with 10 weeks in the event of the unexpected. Rule of thumb #2 Expect the Unexpected.
YELLOW FLAG #4 Expertise or lack thereof…
Professional builders and skilled professionals, such as carpenters and plumbers, often flip houses as a side income to their regular jobs. Certainly a plus, to have the knowledge, skills, experience and licenses to build, fix, repair or oversee.
Some of the real profits in house flipping comes from what is called sweat equity. If you’re handy with a hammer, enjoy laying carpet, and can hang drywall, roof a house, and install a kitchen sink, then you have an advantage to flip a house. Do be aware of your state, county, and city laws regarding licensing and permit requirements.
YELLOW FLAG #5 Lack of Due Diligence
For those new to the game of flipping it is tempting to initially jump at first opportunity. Not allowing enough time to thoroughly inspect and research property. In addition foregoing doing a complete cost analysis including acquisition costs, holding costs, repair costs, and all closing costs for both buying and selling the property. In haste hiring contractors without vetting them. Then, to top it off, cutting corners to save time and money.
These stated ‘Yellow Flags’ are wisdom shared by real estate investors before you, who have learned the above lessons through trial and error. They have come to understand that the of Flipping Properties is much less about Lights and Cameras, as portray by Hollywood, and much more about Hard Work and Commitment to Excellence resulting in varied margins of profit, that in time, create a worthwhile, rewarding and sustainable business.
NOTE: To learn from some of the very best flippers in America plan to attend Friday June 30th from 9:00 – 12:30. Live at the Arizona School of Real Estate & Business. They will actually share how they FIND, FIX and FLIP Properties.
P.R. ‘Randy’ Cooney