While you’re likely eager to get to the demo day and renovations, it’s critical to have a foundation of knowledge and expectations. For those who are considering a fix and flip for the first time, it’s important to know there are many unknowns. Even if you’ve renovated your home, it is much different when you’re overseeing an entire house renovation.
The reality is, that the majority of problems come at the renovation stage. Therefore, a plan is absolutely necessary. Your renovation plan needs to be solid, that means sticking with a budget and a schedule. No one else will care as much about those two things as you do! Without those, you could lose time and money.
No Experience Required
The first thing to know is experience isn’t necessary. When I got started over a decade ago, I had plenty of motivation but not any hands on experience. The extent of knowledge came from watching flipping shows on TV and reading about the business side of real estate investing. The key here is recognizing your lack of knowledge and look for resources that can help to build your expertise.
You don’t have to have experience, but you do need to hire the right people to get your renovation from start to finish! We’ll get into how to effectively hire for your fix and flip later.
How to prepare for starting your flip –
The key to successful flipping is action. Even if you have all the information at your fingertips until you’re actually in the project you’re not going to know what will come up and how you’ll handle it. We’re going to dive into the most important parts of the flip project which are making decisions around these areas:
- Deciding to renovate or simply update
- Hiring contractors
- Establishing a schedule and budget
- Steps to list and sell for maximum profit
- Identify growth or improvement opportunities and repeat
- Renovate or update
Remember, if house flipping was easy, everyone would be doing it. It’s not easy, but it’s absolutely doable and gets easier with time.
Each property is unique and varies in value from neighborhood to neighborhood. Your primary goal is to think about how to maximize your ROI (Return on Investment) without doing too much or overspending. One of the biggest mistakes of both new and experienced house flippers is going over budget.
Before you start, decide what type of project your flip will be. That means, will it be a full renovation or just an update?
Ideally, this is something you would have decided when you were looking at the numbers for resale but some homes may offer the opportunity for both. Confirm your plan prior to starting to make sure your original plan still makes sense.
Renovation is when you remove what is there and replace it with something new. For example, in a kitchen, that would include removing all old cabinets and fixtures and installing new cabinets, countertops, fixtures, and appliances. It may also include removing walls to create an “open concept” floor plan.
For an update, you would keep much of what is existing in the home. These projects would consist of a lot of paint and flooring for the changes. Replacing high-use items like sinks, countertops, appliances and light fixtures will also add value. The overall layout and spaces will stay the same.
Choosing between a renovation or an update is a budget choice. If the existing cabinets and fixtures are in good condition, it’s less expensive to keep them, clean them up and paint them. This will help maximize your profit.
If you have the budget or the area supports a renovation, then it will help increase the value of the house. Either option may work and you can incorporate ways to sell for more with both.
Tip: Even if you think you want to keep the cabinets, always compare the price of cleaning, repairing, and painting to replacing. You may be surprised that the time and labor for the painting are comparable to the cost of replacing them.
Let’s get back to ROI. Decide improvements through the lens of potential ROI. For instance, in older properties, renovate the kitchen because the area won’t have the layout that modern homes have. Another key room to renovate is the bathroom. Changes to these two areas will add significant value.
Not every room needs to have a major overhaul! Sometimes adding fresh paint, changing out the flooring, and swapping out light fixtures can add enough value while creating an opportunity for profit too.
- Hiring contractors
For those who don’t have renovation experience, hiring a contractor is the best way to ensure that your renovations are completed according to the required building code.
Finding a contractor doesn’t have to be difficult. I suggest always starting with referrals from friends and family. Who do they know? Who have they hired and had a good experience with? Real testimonials or knowledge of someone who is a contractor is the easiest place to start.
There are more ways than ever before to connect with contractors. You can see projects, read reviews, and research companies from your phone. Websites like Angie’s List or Home Advisor can provide potential leads.
Always vet any contractor thoroughly. All contractors should be bidding on the same scope of work you provided so that all the bids are comparable. Get multiple bids and compare them carefully. Beware of thinking that the cheapest bid will end up saving you money; it could actually cost more money because of poor work or a lower initial bid that was designed to win the job.
Work with your contractor closely on schedule. An experienced contractor will be able to review the schedule and make suggestions. Be clear on who will be responsible for materials and other necessities. If you’re going to provide lighting and tile then you will need to know the dates those items are needed on the job site.
A timeline is just as important as a budget. Your contract should include both a start date and a completion date. Ideally, your contractor will be able to complete renovations on schedule, but they could encounter situations that cause delays or setbacks. For example, they might find additional repairs needed behind walls or items during construction that need to be addressed.
If you have setbacks and need to change your timeline, don’t worry. Stay calm and figure out the proper solution with your contractor. It may increase costs but the alternatives will cost much more. Trying to sell a house where you started and then walked away isn’t going to yield any profit. If you ignore the problems, it may cost you a sale when a buyer’s inspection reveals the issue. The bottom line, take care of it. It’s worth it.
At the end of construction make sure you complete a walk-through. This should be done before the final payment is made. You’ll confirm all the work was completed and the house is ready to be shown to potential buyers. This is the time for paint touch-ups, caulking, and checking doors to make sure they open and close properly. Look at the house as though you were a buyer and if it looks like something that needs attention, make sure it’s addressed.
- Keep a schedule, stick to your budget
As renovations get underway it’s going to be exciting. There seems to be a lot happening in the beginning and then all of the sudden, things will slow down a bit, or a lot. Don’t worry, that is the nature of construction. This is where it’s key for you to continue to check in on the project. Especially if you’ve hired a contractor to oversee the project.
When you’re starting out and working with someone new you’re still managing the project. It’s up to you to ask questions and don’t be afraid to ask a lot of them.
I also recommend you ask the contractor to let you know when inspections are scheduled. That way you can add that to the job schedule and know how things are moving along. Delays are part of the process and are often out of your control, but being aware of when and why is essential.
Along with your schedule, you will have a budget for every job. This includes materials and labor. You must be strict with your budget. To maximize potential profit, you’re flipping for the best ROI, and that means making smart decisions.
Some flippers will make changes along the way, and this is a big mistake that will cost you. Unexpected re-routes not only delay the project but can cost a premium. Do your best to cover all the work initially. If there’s something small you really want to change that may be doable but deciding to remove a wall after the drywallers have finished would be extremely difficult.
- Sell for a profit
The second-last step to wrap up your flip is preparing for market and in-person and online viewing. That means staging and getting professional photos done! Staging can be done by you or professionals. I recommend bringing in the professionals and learning from what they do, you might be able to pick up enough tips to do it yourself next time.
Photography is also crucial. Photos tell a story and help potential buyers imagine themselves in the home before stepping foot inside. Photographers will take the photos at the right angles, ensure adequate light, and overall look better than phone photos.
And finally, once the renovation is complete you are ready to sell the house! Your goal here is to sell the property quickly so you can move on to another project.
Having a good realtor is key. They will help you with pricing recommendations and represent your interests when working with buyers. They’ll negotiate on your behalf when it comes to pricing, concessions, and inspection requests.
Though you will pay a commission, they bring expertise to the process and can potentially secure you a higher price and more favorable offers.
If at this point you are considering your next project, congratulations. You’ve just learned something new about yourself and what you are capable of. As you continue to gain more experience, taking on larger projects may be on your horizon. These will feel so much more possible with the experience you’ve built.
- Lessons learned and repeat
Along the way, there’s a chance you’ll make a mistake. It is, after all, your first fix and flip. Don’t get discouraged because you will learn that all problems have a solution. When something is new, it just may take a bit more to figure out what that solution may be. Learning by doing is always the best educator.
Fix and flip isn’t for everyone, but anyone willing to take on the challenge will learn how to be successful.
This series of tips is the beginning of your fix and flip journey. With every single project, you will find your knowledge and skill growing. Soon, you may be looking to pivot to larger projects or different neighborhoods. These choices are yours to make so get ready to take control of your flipping future.
Ready to take that next step when it comes to flipping?
Here are some resources I’ve put together to help you get the information you need to move forward on creating your flipping life.
Make sure you have the Fixer Upper Checklist so you know which areas are key to added value in a home.
If you are interested in learning more about the House Flip Blueprint course go here.
There are several videos available on finding houses, renovations, and funding on YouTube. Check out your favorite flipping topics and new videos weekly!