Tuesday, January 17, 2012

Make sure your FLIP isn’t a FLOP





             With the market in the proverbial port-a-potty there are many opportunities available for the savvy investor.  Flipping homes has become a trend popularized by TLCA&EHGTV.  It looks SO easy doesn’t it?  Even Vanilla ICE is doing it!  A little extra coin in the savings account, a story about how you once helped your neighbor build a tree fort and you’re off.  Let’s make some money!!  

Whoa there big fella….

Ok, ok, I know you hung your new flatscreen and have every episode of “Flip this House” Tivo’d, but there may be a chance – just a chance – that you’re going to get in over your head.  Let’s get a plan in order first huh?  How about a little due diligence?  Fair enough?

Whether a certified general contractor, Donald Trump, or a driving range pro, there are variables that must be accounted for prior to putting pen to paper, or shall we say putting your money where your mouth is.  Without completing your due diligence you are simply putting yourself in a compromised situation.  You may come out unscathed, but why start off in the wrong direction when you don’t have to?

Your first concern is a true and realistic budget.  In these preparations I prefer to be overly conservative to better protect my investors and myself.   Your obvious first calculation needs to be your pre determined total budget.  Be fair and be realistic.  If you are lucky enough to have access to unlimited funds, don’t take the approach that “funds aren’t an issue”.  Funds are ALWAYS an issue, without a firm loyalty to the budget you set yourself up for nothing but failure.

We now need a “Flipping Itinerary”, and this is not the time to remember that episode when the HGTV crew flipped a house in under 24 hours.  Take into consideration actual sale timelines in your area for comparable homes – then add 30%.  Patience is a true virtue in this game, and being prepared ahead of time only makes it easier.  I’m sure you have the absolute best intentions in hand and will renovate in the most attractive way possible.  However, there are variables that can and probably will arise that you can’t prepare for.  The best way to prepare for the unknowns is to build in additional time.   Time is money, so calculate all hold costs and be precise.  Hold costs are a valuable piece of information as time progresses.

            It’s renovation time!  The hands are dirty and the journey has begun.  We’ve stuck to our itinerary and our budget is in tact, this isn’t so bad!  While you sink into the rehab be sure to always keep quality in check.  Just as you got this wonderful idea to flip, chances are high that your buyers are watching the same program.   Today’s buyer is incredibly savvy, researching on line is second nature to most, if you try to “cheat” you will probably pay for it in one way or the other.  So make sure your permitting is correct and deeds and liens are cleared.  A great idea for a little extra money is to have an inspection done on the home by and unknown source.  These inspections are in the $300 range and will save you a lot of headaches in future negotiations.

            Flipping can be fun and it can certainly be profitable.  Just be sure to keep your ducks in a row and remember, in the end, it’s business; and you need to be prudent.


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