Over years of lending to people who flip or use the BRRRR method five key elements stand out as consistently leading to the best successes.
Incorporate them all to produce your best flip and reap the greatest possible profits!
1. Know Your Numbers
Profits are made on the front end, on the purchase! Make offers with that in mind. Keep sentimentality out of your offers and stick to a formula.
Here’s how to formulate your maximum offer:
Know the realistic ARV (After Repair Value).
Take off the rose-colored glasses and use true comps if you want to be sure of a good profit.
- Ask yourself: Is the house weird in some way that limits the appeal? Is it on a busy road or by railroad tracks? Near a bad neighborhood?
- Adjust your ARV downward, accordingly, for any undesirable feature that differs from the comps.
- Check out the rehab calculator here, partner with someone who is knowledgeable, or walk it with your contractor to get the best repair estimate possible.
- Plug in the ARV and estimated repair costs to the flipping formula. (Some websites sell this formula, but you’re about to get it for free. You’re welcome!)
- Flipping Formula: ARV X .70* – repair costs = maximum offer.
- *Note: 70% is the base for the formula, but you could use anywhere from 70-80%, realizing that your profit shrinks as you go higher.
Know the real cost to rehab.
Calculate your maximum offer for the property.
If you stand firm on your maximum offer, you can make money in any market.
2. Manage Your Property
- Check on the property in person and frequently – at least 1-2 times weekly– to see what’s going on. Stay on top of it!
- Even if you have a project manager, don’t be so fully trusting of them.
- Keep an eye on your timeline. Make sure the appropriate permits are filed.
- It’s your house, your money, your vision! Make sure it’s going in the direction you want it to go.
- This is a MUST: Manage the house, or manage your manager!
3. Build a Team You Can Trust
Real estate is a relationship business.
The hardest flip is your first one because you don’t have a team built yet. Here are things to consider when considering who to work with:
- Choose to work with people you trust and like and who get what you’re doing.
- We see too many bad contractors out there. If you do find one you like, treat them well!
- Use the Resources page on our website to help find great contractors.
Real Estate Agent
- When it’s time to list, find an awesome real estate agent who cares and who will work hard for you.
- Choose an agent who understands how investing differs from residential real estate.
- Go with someone who is a professional and not just your family friend.
Hard Money Lender
- Find a hard money lender you can trust and get good advice from.
- Go local! At FasterFunds Lending, we’re just a phone call away when you need advice to keep your project on track and profitable.
The first couple of flips are the hardest, but once you have a great team built, it gets easier and easier!
4. Make It Stand Out!
When doing rehabs it’s easy to copy and paste a design combo that works for you: the same wall color, the same white cabinets, the same flooring.
After a while the results tend to look, well, the same.
In the hot market over the past couple of years, no one had to worry about creating a stand-out feature in each house, but now it’s practically essential.
It’s wise to add something unique (but not weird) to catch
attention. Just one special touch can make a potential buyer say “Wow!”
What kind of special touches are worth adding? Try one of these or let them spark other ideas:
- Spend a little extra on some bold light fixtures that are trending.
- Get creative with tile in the bathroom or on the kitchen backsplash.
- Choose a distinctive wallpaper for a main floor half-bath.
- Or, like one of our clients did, turn an awkward basement sink area into a special dog bath!
So many possibilities! Just keep it tasteful and limited.
If a buyer looks at three similar rehabs, you want yours to stand out as “the one”!
5. Do Some of the Work Yourself
Some rehabbers contract everything out.
They hire an agent to find a house or buy the house from a wholesaler; they hire contractors for all repairs and finishes; they don’t use any of their own money; they hire an agent to sell the house.
Everything is hands-off.
It’s hard to make money that way in today’s market!
Instead, save money and increase profit by doing what you can yourself.
Buy directly from a motivated seller.
- You have the flipping formula. Use it to make offers!
- Buying direct gets you the best deal.
Do some of the work, but only within your skill set.
Are you Thor when it comes to wielding a hammer? Do some of your own carpentry work. (If you’re not, don’t try it!)
Maybe you repair walls and paint better and faster than most pros. Do it!
Skilled at landscaping? Turn up the curb appeal a notch or two.
Use some of your own resources.
Have some cash? Use that instead of borrowing rehab funds and paying disbursing costs.
Salvage some quality materials yourself if you have a keen eye and some good sources.
Be your own agent.
Are you already a great real estate agent? Save yourself the commission.
Don’t try this unless you truly have experience as an amazing investment agent.
Whatever your skill, talent, or experience may be, consider adding some value yourself!
Be Inspired and Be Confident!
Maybe the Five Steps above were just a confirmation of what you’re already doing. Be confident of continuing success in the changing market!
Maybe you’ve only been doing three of those steps. Incorporating the other two could be a game-changer for you!
Maybe you’re relatively new to rehabbing. You now have a practical formula and a road map to success!