A Fix and Flip strategy, where real estate investors acquire a discounted property to rehab and resell quickly for a profit, needs to be executed with precision to make your ROI. Here are the 5 most common mistakes that can erase your potential return:
Mistake#1: Overpaying for a property. To make the Fix and Flip strategy work for you it’s crucial that you spend no more than 70% of the after repair value (ARV) with your renovation costs subtracted. This is the “70% rule”, which is , as rules of thumb go, a good one to follow. If you ignore your budget, you may not only not profit much, but end up losing money. One great way to secure fast financing for a Fix and Flip deal is through a private or hard money lender. Your private lender can provide the funds you need to buy the property based on the ARV. If you stay on budget and make quality repairs, you can pay the loan off within the short time frame after the house is remarketed.
Mistake#2: Over rehabbing. Those high-end appliances, granite countertops and cherry wood cabinets may be your signature look but will they really impact the price per square foot you yield in your market and significantly increase the property’s appeal to buyers. Watch your rehab budget – fancy finishes often don’t perform like you thought they would, costing you money you could have used more wisely.
Mistake#3: Not doing Quality Work to Save Time. Holding costs are painful but doing a low quality rush job will hurt even more. If you take short cuts with the quality of work on the project to save time, your potential buyers will know – and so will their inspectors. This mistake is compounded if you forget to obtain the necessary permits from the city or county your property is located in. It takes some time and paperwork but skipping this step can cause begger delays and headaches down the road.
Mistake#4: Neglecting the landscaping. It’s easy to get so lost in the home design that you completely forget about the curb appeal that comes with a nice landscape. However, the yard becomes the “face” of your project, and potential buyers are going to be turned away from a half-hearted landscaping job no matter how great the house interior looks. Hire a landscaper to trim the bushes and mow the lawn to make it look like the property has been cared for and not subjected to years of neglect.
Mistake#5: Attempting a DIY rehab project. If you want to get hands-on with some of the rehab, then jump in. If you’ve never worked on electrical or plumbing projects, you should leave these jobs to professional contractors. Your budget will be impacted but you will save money in the long run by doing the job right the first time.