The biggest mistake that many make in flipping real estate is not properly evaluating the cost associated with the deal such as reserves needed to close, repairs, listing fees, etc. When all is said and done, how can you truly turn a profit without going negative? Here’s several tips that can really make a difference on your next real estate investment.
1. FIND DEALS THAT MAKE SENSE
Don’t be a superhero telling yourself that $10,000 aside will be enough to allow a total gut, clean, renovation and while we’re at it, let’s also repair a foundation issue. You want to stay far away from the nuisance problem child home that will nag you day after day, burning holes in your pocket. Instead, finds deals that make sense, requiring a simple clean, paint and landscaping enhancements.
2. FIND A TRUSTED AGENT / BROKER
I cannot tell you how many times I’ve dealt with bad agents and really really good agents and brokers. Be selective when picking a great business partner. Those willing to review deals late at night, ready to jump in front of a bullet and send offers in a moment’s notice are the people you need in your circle. Having strong representation is so important, especially when time is your enemy and you’re trying to get your deal accepted before someone else comes along. Having a strong agent will save you money when negotiating price, as a result will support more funding for your flip for a higher future payout.
3. NEGOTIATE THE RESPONSIBILITY FOR THE TITLE INSURANCE COSTS
I went into a closing one time and paid for the buyer’s title insurance. Why? I honestly didn’t want to. I honestly had to if I wanted to close quickly and move onto another deal. What is good business practice and who typical pays for title insurance at closing? The buyer does. Bottom line, when you’re buying – don’t be afraid to put the seller as being responsible for paying your title insurance. It’s your offer, your terms, your money for the flip needed for repairs.
4. SHOPPING ON A DIME – BUYING ON SALE OR DIY ASSEMBLE
I tend to buy throughout the year. Clearance items have a special place in my heart and I love them! I tend to go to my local hardware store – straight to the clearance sections to see what’s on sale. The items that require assembly are a great way to save money. I purchased kitchen cabinets and a counter top for less than $600. In addition, I bought a gently used bathroom vanity that didn’t have the matching mirror for less than $100. I later went to a home décor store and purchased a matching mirror that looked great with the vanity! In total, I saved approximately $1,200 in labor by shopping on sale and assembling myself.
5. EVALUATE THE REPAIR LABOR VS. DIY
If you possess the flexibility, willingness and craft to do the renovations yourself, I’d recommend that you consider evaluating the contracted labor cost vs your direct material cost first. If you hire a contractor to perform service, you might as well anticipate a 20% markup on materials procured from the same place you would have bought them from as well as include there hourly labor rate which may differ from area to area. If you’re willing to take on more renovations yourself in the future, it may behoove you to buy the necessary tools and equipment as an investment now to later save on your projects. By doing so, you will eventually flip on a budget and eliminate labor costs for non-permitted projects. Garage sales and consignment shops are great places for light fixtures. Don’t forget to request your family and friends as extra hands to support and assist!