7 Mistakes in Flipping and Fixing, and 5 Ways to Do It Right
Why and how fixing and retailing houses can be an extremely lucrative business. I should know. Our mentor Lee Arnold spent almost his entire professional life using this avenue to create wealth. Not only he is an expert on the topic, but have created a comprehensive system to use that takes out the guesswork, the headache, and the trial and error so you can set yourself on a path to success.
And my system of education doesn’t stop at rehabbing homes. Even if flipping isn’t your main real estate focus, we have something for everyone who is looking to get started, improve their current career, or striving to branch out into a new channel of real estate investing.
He said, “I’ve been there on every side, in every part of being an agent to contracting work to brokering to buying houses with cash.
I can promise you one thing; regardless of where you are in your career and what hurdles you are facing, I’ve been there. If I can help you to avoid some of the mistakes I’ve made and see others make consistently, then I will. After all, our company motto is:
“We get more of what we want by helping you get more of what you want.”
So, I want to steer you away from these expensive mistakes, I learned from him, that could leave you disenchanted with an industry that could otherwise change your life, and direct you toward the right way to get started!
What are the 7 Mistakes to Avoid when Fixing and Flipping?
1. Thinking this is an easy, “Get Rich Quick” model.
Yes, I can teach you exactly what to do and how to do it. But it’s still a lot of work, a lot of time, a lot of offers, a lot of rejection. This is no “get rich quick scheme.” I will never promise you instant riches.
You must make the phone calls, market yourself, stay the course, and continue to learn. If you follow the Lee Arnold System of Real Estate, you will reach your goals quicker and with less frustration and financial growing pains. It’s a proven system, and you’re in good hands if you implement what we teach. It’s important that you understand you aren’t 2 weeks away from your first paycheck yet.
This is an investment, and although I’ve seen great success happen to people in short periods of time, you’re likely looking at four months of full time, dedicated work from the start to the payoff. But you must be ready for the work!
2. Jumping in with only minor research.
90% of your time will be spent researching, viewing, negotiating, and then doing more research before you acquire the property. Why? Because the most direct and least expensive way to avoid mistakes is by understanding the market, the contractors, the fine print, and expectations.
Knowledge is power. You can do all this research yourself (good luck, I can tell you from experience that the internet is a black hole of information!) or you can follow a system that is proven. Let us show you exactly what to look for, how to do each task and in what order, and where to find the vital information you need to put together a successful deal.
3. Doing all the work yourself to “save money.”
I’ve been there. I’ve done this. I’ve ripped drywall out of basement walls with my buddies only to get covered in roaches—ask Gary Myers who likes to tell the story on the road! Don’t do what I did and assume that if you can do the work yourself that you should.
You should hire and outsource almost every single task related to property ownership and instead qualify the contractors to do the job for you. Once a property rehab is underway, your priority is to manage the workmanship to assure maximum profit in the resale of the house, keep things on schedule, and properly manage the draw system and budget. You can’t do these things if you’re busy installing tile.
If you chose to do a task that you could otherwise hire out for $35 an hour, you are proving to yourself that your time is only worth $35 an hour. You can do a contractor’s job for $35 an hour, or you can go out there and find another house that has the potential to make you thousands. See what I mean?
4. Quitting your day job too soon.
I do a lot of private consulting, and my clients always come to me with interesting goals. They want to make a million dollars in a year and quit their job. It’s a noble goal, but aside from not being realistic, most people wouldn’t be able to wrap their brains around that drastic and rapid of change.
What I tell people is to stay at their current job and build their business in tandem with their work. It’s a lot of late nights and weekends, yes. It involves sacrifices, but here’s why it’s good: You need stability in your income so you can make rational, smart decisions in real estate. If you quit your job and rely solely on real estate as a source of income before your business is stable enough, you’ll end up making poor decisions just to put food on the table.
Keep your job and let me help you build wealth so you can walk away from the 9-to-5 with confidence.
5. Not having a real exit strategy.
If your main goal is to rehab a home that will be purchased with conventional or FHA financing, are you considering the standards in which conventional financing or FHA standards dictate? If you aren’t building according to these standards, you are essentially playing a game of craps. What happens if the house doesn’t sell?
If your strategy is to then purchase the home with conventional financing at the end of your private money term, can you qualify for conventional bank financing? If not, you need to rethink your exit strategy. Understanding each scenario is vital to your future success.
Remember how I said I’ve seen it all? I promise you, if you sell every house you ever rehab without having to use a different exit strategy, you’re a lucky investor. Things come up, and if you need help developing new exit strategies, give us a call, and we’ll plug you into the right source of information for that. 800-533-1622.
6. Paying too much when you buy.
You make your money when you buy, not when you sell. That’s why 90% of your research goes into the acquisitions part of the process and not the sales aspect. Start with the final selling price and work backward to deduct the selling cost, profit margin, renovation cost, and buying costs. Don’t forget to factor in holding costs and margin for error. You figure out your MAO (maximum allowed offer) by first determining the ARV (after repair value) of a house. $80,000 for a house means something different in every single market, so do your research!
7. Paying too much for the rehab.
I can’t tell you how many people get into this business and treat the renovation as if they are designing their dream home. This is an expensive, unnecessary, headache-inducing mistake and should be avoided! Your main objectives in renovating a house is to address every safety issue, update and clean the house to current market standards, and design it to appeal to the masses. This isn’t a luxury rehab.
Want to implement the “wow factor?” That’s where a few strategically placed designs can come in such as a small backsplash or a cool sink faucet. (And STAGING! Click here for more about this vital step). Don’t go all out on cabinets that are 300% more than you budgeted. By overdesigning a house, you run the risk of going over budget, turning the right buyers away, or having someone purchase the house only to redo what you thought was a good idea. Your budget should dictate your choice. Otherwise, the style choice comes straight out of your profit.
I know that’s a lot of things NOT to do. It may be easy to think that you’re getting into a hot mess, but that doesn’t have to be the case.
When you keep it simple, stay focused, and do what has been proven time and time again, you can turn your dreams into reality.
I’m not just going to leave you at that and walk away. Let’s now discuss how to get you started.
How to Get Starting Fixing and Flipping the Right Way?
If you’re new the world of house flipping, if you’re curious about it, or if you’ve done it before but don’t think you did it right because your profits didn’t match your projections, then I’ve broken down the basics for you in 5 basic steps.
1. Plan – If you don’t know what you’re doing, the best place to start is by cozying up to someone who does. Not only will a good education, mentor, or coach save you a lot of unnecessary time, cost, and headache, you will learn faster and turn a profit sooner.
2. Finance Your Flip – Most banks won’t finance a distressed property, nor will they fund the renovation costs without collateral (like a second mortgage on your house). I wouldn’t recommend that; READ HERE to learn why.
You could use your own capital if you have it. Or, if you’re like most people who don’t have that kind of cash lying around, you could get approved for a private money loan. Like us here at Cogo Capital, private money lenders base a loan on the property itself, and not solely on you.
Have a deal? Visit us at www.montclairecapital.com to fill out your fast and easy quote.
3. Buy Smart – You don’t make money when you sell a flipped property, you make money when you buy it.You need to purchase a property right, or you’re already on the wrong foot. So, how do you determine how much to off on a property in order to make money on it? The formula is easy!
Take the ARV (after repair value of the property, i.e. the retail value), multiply it by 70%, and subtract the cost of repairs. Whatever is left is your MAO (maximum allowable offer).
Let’s say you want to put an offer in on a property that has an ARV of $200,000. Take $200,000 x 70% = $140,000. If the renovations will cost $40,000 (get several estimates by licensed and bonded contractors), that’s $140,000 – $40,000, which = $100,000. The maximum amount of money you should offer on this property is $100,000, and if you can get it for less, you’ll make more!
So, $200,000 (ARV) x 70% = $140,000
$140,000 – $40,000 (rehab cost) = $100,00 (MAO)
4. Remodel Right – There are so many mistakes you could make in a rehab project. Mistakes are easy to make, but it’s just as easy NOT to make them if you know what you’re doing!
5. Sell Fast – Time is money in real estate investing. If you overprice a house, you run the risk of having it sit on the market too long. You’ll pay in holding costs and tie up your funds on the next potential project.
You’ll also want to hire a professional photographer, create a quality online listing.