Fixing and flipping property has been one of the oldest and most consistent ways to generate income for savvy-minded entrepreneurs. Akin to treasure hunting, the right fix-and-flip guru can locate diamonds in the rough before transforming them into accommodating homes and a boosted return on investment.
While it may seem simple to fix and flip homes from the outside looking in, the process is moderately difficult with many tricks and trips intrinsic to the trade.
Today, we are going to explore a handful of fix and flip project rules you can follow to help you stay within budget while you build your business with better rehabilitation projects.
Learn the 70% Rule
Individuals looking to enter the world of real estate will want to do so by first arming themselves with a proper understanding of the 70% Rule. The 70% Rule in House Flipping is a tried-and-true method used by renovators to buy low and sell high — putting things simply, of course. So what exactly is the 70% rule, and how can you use it in the fix-and-flip marketplace?
The 70% Rule is focused on the after-repair value of a property. When scouring potential real estate listings, house flippers should invest no more than 70% of the after-repair value in the property, less any costs for repairs required to complete the home’s renovation. While this is just a general rule, it should be adhered to as much as possible. This will require some market research and a proper understanding of property values.
What Is The Calculation?
The 70% Rule is easy to employ for newcomers to the fix-and-flip world as well as seasoned practitioners alike. The equation that you should use is as follows:
After-Repair Value (ARV) x 0.70 – Potential Repair Costs = Estimate Maximum Buying Price.
What Else Should I Know?
Depending on the market, the 70% Rule can change pretty dramatically. If you are looking to flip a home within a seller’s market, you are going to have to accept an offer that might fall outside of the 70% Rule. In certain hot markets, buyers of fix-and-flip projects can end up spending as much as 85% of the home’s ARV.
While the 70% Rule is a functional tool to guide your process, it should not be used as the only concrete way to view a fix-and-flip project. Take into account the different market factors that may impact your process before deciding how far to bend this rule.
Lock In Your Renovation Timeline
There are few better ways to tank a project than by completely losing track of your timeline. Renovations are particularly fluid projects because any issue can manifest, causing delays that disrupt the entire process. With that being said, a locked-in timeline can have you finishing your work long before you run out of money.
If you were to base your house-flipping adventures on the latest HGTV special, then you’d think these sorts of projects can happen overnight. This isn’t the case and planning for a quick project can ultimately leave you holding the bag.
To best succeed, you should lock in your renovation timeline so that you have a road map of where you are going, how you are going to get there, and how much it will cost along the way.
- Pre-Purchase Due Diligence – Before finalizing your offer, you need to take competitive steps toward researching and understanding your target piece of property. Evaluate the property while determining your 70% Rule. If the seller ultimately accepts your offer, have the property inspected before finalizing the deal.
- Planning Phase – Once a deal has been made to close on the property, it is time to start planning out your renovation timeline. This is a closed period where you can begin finalizing your Scope of Work, Bid Proposals, and Construction Schedules. If your seller is OK with it, consider taking a contractor on a walkthrough of the building.
- Coordinate Repairs – Traditionally, fix-and-flip projects will begin with the major exterior work that needs to be finished. After finishing the exterior work, your team will begin to move throughout the interior of the home. Work closely with your contractors to make sure that everyone is where they need to be when they need to be there.
Create a Budget You Can Adhere To
According to a report released by Attom Data Solutions, almost 7% of homes sold over the past decade were a part of a fix-and-flip project. What does this mean? It means that fix-and-flip projects are incredibly productive and beneficial, so long as they can stay within budget. If you spend too much on repairs, you’ll lose money. If you don’t spend enough, the sale might never go through. How can you make sure that you are part of the 7% of sales completed over the past decade?
Start With An Initial Budget
Technology has made it easier than ever to keep track of important information. Utilizing spreadsheets and templates, get into the habit of tracking all of your expenses. You can utilize this part of the process while developing your 70% Rule on the targeted property that you are working on.
Putting your budget in writing makes it easier to save money as you will have your goals clearly outlined. During this part of the process, you should also be sure to officially cap your budget at whatever ceiling you feel is most comfortable.
Prepare For the Unexpected
One of the easiest things to learn about the world of home renovation is that there is always something unexpected waiting around the counter. Maybe your property has bad plumbing. Perhaps your project requires emergency repairs to the roof. No matter what the problem is, make sure that you are building an emergency fund into your budget. Something will happen along the way and if you don’t plan for it, you will find yourself quickly falling behind.
In this context, budgeting conservatively means making a budget that plans for the worst-case scenarios. This means that you need to account for many of the normal potential delays that fix and flip renovators face: missing contractors, large renovation bills, unknown property issues, and so on.
After assessing your budget, give yourself a cushion within the 70% Rule so that you can prepare to accommodate for the unexpected. In a best-case scenario, the unexpected never manifests and you get a stress-free experience that arrives on time and under budget.
Dig For Deals on Materials
When it comes time to break ground on your project, you need the proper materials to address the challenge. Find local deals on materials by working directly with contractors, wholesalers, and other local building professionals.
Find Trustworthy Lenders For Financing
Finally, you aren’t going to get very far in the world of fix and flip rehab projects without a trustworthy lender working on your team to supply you with the financial support you need. For fix-and-flip experts in Arizona, help can be found at Hard Money Lenders AZ.
Hard Money AZ is. the top-rated Arizona hard money lender on Google with years of experience in the field and a curated resume of satisfied clients.
When it is time to dive into the world of a fix-and-flip renovation, you’ll want the benefits that the team at Hard Money Landers AZ can offer, including:
- Quick Funding – Priding themselves on the fastest funding in the industry, Hard Money Lenders AZ specializes in processing loans in as little as 24 hours. Fast funding allows you to stay focused on the challenges ahead.
- Premier Communication – In the world of rehabilitation projects, you need a communicative team that can help you achieve your goals. Communication is key when it comes to Hard Money Lenders AZ.
- Industry Veterans – With more than 30 years of industry experience, the team at Hard Money Lenders AZ is uniquely qualified and experienced in the systems you will need to explore to succeed.
- Flexible Solutions – Hard Money Lenders AZ works with clients of all financial backgrounds. From poor credit and bankruptcy to foreclosure or life as a self-employed professional, Hard Money Lenders AZ can find the loan that works for your needs.
Entering the world of fix-and-flip projects can be as exciting as it can be intimidating. Arm yourself with the proper knowledge and support network and you’ll find success on your terms.