There's no better teacher in the fix-and-flip business than an investor who has achieved long-term success.
Here's a 5-step strategy successful fix-and-flip investors follow. It's not rocket science, but it does require know-how, discipline and focus:
Identify a Suitable Property
Finding a property to flip is your first and most significant hurdle. If you're operating in a very competitive market where viable deals are harder to come by, begin by networking and building relationships with area professionals who can alert you to properties, as they become available.
Successful real estate investors rely on their network of agents, wholesalers, contractors and other business connections to bring them potential deals. If you're serious about building a successful fix-and-flip business, be sure to make networking with industry professionals a top priority.
Once you've identified a property, you must determine how it will compare (after improvements) to similar properties in that market - and how much buyers will be willing to pay for it. Your property's "after-repair value" (ARV) will help you decide whether the cost of buying, adding repairs and upgrades and paying closing costs leaves enough room for profit. Refer to Anchor's free e-publication "Evaluating Condition and Value of an Investment Property" to learn how to estimate ARV by comparing your property to local market comps.
Secure Financing to Purchase Your Fixer
If you have plenty of capital and will be buying your properties with cash, you can skip right to step 3. But if you're like most investors who will build their fix-and-flip business with borrowed capital, you'll need to find a lender that suits your needs.
Financing can take many forms. From hard money loans to home equity lines of credit to conventional bank loans, successful investors use reliable financing sources to fund their fix-and-flip projects. For hard money loans (a private, direct loan where real property serves as the collateral for the loan) there are four key underwriting components that will affect whether or not your loan is approved. The answers to these questions will determine whether or not your hard money lender will be willing to finance your project:
- Where is the property located?
- What is the value of the property?
- What is your level of experience?
- What is your financial standing and credit history?
Keep in mind that a hard-money loan is asset-based, so these lenders will typically be much more lenient with credit history than a conventional bank.
More often than not, an experienced fix-and-flip investor will have an existing relationship with a lender to whom they can turn for funding on short notice. When seeking financing for your project, don't settle for slow customer service or repeated excuses for funding delays. Partner with an experienced lender whose commitment to your success is demonstrated by prompt attention and fast, reliable funding.
Make your Repairs and Renovations
Unless you plan to carry out the "fix" portion of the fix-and-flip yourself, contractors will play a key role in your investment success. Finding reliable contractors may be your biggest challenge, according to fix-and-flip advisor Mindy Jensen.
"This is going to be the hardest part of the whole thing," Jensen told US News & World Report. "I have found three [contractors] in my whole flipping career who were amazing."
Jensen says the best way to find reliable contractors is by asking for references and looking at completed projects that best suit your current needs. Building relationships with the contractors who align with your goals will be a crucial part of your ongoing fix-and-flip investment success.
You'll need to work closely with your contractors to manage your project's timeline. Scheduling delays can wreak havoc on your completion deadline and take a huge bite out of your profit. Successful fix-and-flip investors will help their contractors keep a tight rein on project, timelines to avoid cost overruns
Sell the House
Selling the house is where the rubber meets the road for successful fix-and-flip investors. All the work done to this point will be for naught if your investment property languishes on the market
This step involves two key questions: How will you stage the home? And, will you work with a realtor?
Staging is a crucial part of selling a house. Cleaning and prepping the home's exterior and interior, and showing how your newly renovated spaces can be utilized, will make your property much more attractive to buyers. "Let potential homebuyers picture themselves in your rehab property", advises JD Esajian for FortuneBuilder.com, "and you've done most of the heavy lifting already."
Any remaining heavy lifting could involve the work of a realtor, but successful fix-and-flip investors will tread carefully here. There are several important considerations when contracting with a realtor to sell your renovated property. A realtor may want a longer timeline for getting the house sold (from several months to a year) and may not be able to guarantee a sale at all. You will also have to pay a commission, which will eat into your final profits.
However, working with a realtor also grants access to the multiple listing service (MLS) and an extensive network of realtors who might connect you with a buyer. Successful fix-and-flip investors address this question on a property-by-property basis. The answer may not be the same for every project.
Repeat the Process for Long-Term Investing Success
Once the property is sold, a successful fix-and-flip investor enters the most crucial part of the process: doing it all over again. Ultimately, fix-and-flip business success is defined by a healthy return on each investment, duplicated across many projects.
When you've sold your property it is a great time to assess your completed flip project. What went well? What could be improved? Successful investors will fine-tune their process after every project. No matter how good your process may be, it can always be improved by the valuable lessons you learn along the way.
Anchor Loans offers our fix-and-flip investors robust tools to help them succeed, including a secure online Anchor Account. Using your Anchor Account, you'll be able to manage your loans, monitor construction schedules and keep close tabs on all of your fix-and-flip projects.
Ready to get started? Anchor Loans is prepared to work with fix-and-flip investors of all backgrounds, provided they meet certain conditions. Contact us today if you're ready to begin building your successful fix-and-flip investing business.
