Tips from an Experienced Fix and Flipper
February 3, 2020
The Wehner Group, eXp Realty
2019 Real Estate Team of the Year
Flipping homes is what brought me from Southern California to Arizona in 2003. I used my life savings from waiting tables to purchase two homes to flip because both mortgages were less than what our rent was in Huntington Beach. The market was very different back then, demand was high, loans were easy to come by, we could work with our best friend appraiser, prices were going up, and we didn’t have to compete with the ibuyers like we do today.
Fast forward to 2020: We have a lot more competition, an even lower inventory market, and we have more strict lending and appraisal guidelines that can pose challenges to the escrow process. Over the past 17 years, I have been a part of over 100 flips, and here are the top four tips I have learned from my wins, and even more from my losses:
- Have a back-up exit strategy. While inventory is lower today than its lowest point in 2005, on top of the population growing 20% since then, we still never know what will happen in the future. With the elections coming up for example, that may throw a wrench into demand and cause a temporary slowdown in sales. The good news in AZ is we have strong population growth, income growth and reside in a landlord and business-friendly state. If the home you are targeting does not fetch the price you need to make a good profit or a profit at all, what can it rent for and how is the rental market? Could it be a good short-term rental? Could it be a group or assisted living home? If selling is the only exit strategy and it can’t sell for the price you planned on, you may have to take a loss or even worse: face foreclosure. Having multiple exit strategies is a critical way to safeguard your investment.
- Conduct an inspection and get estimates from a contractor you trust. One trend I have observed over the years is investors not getting a home inspection and later finding out the home needed tens of thousands of dollars more in renovations than anticipated. If you are buying at the trustee sale or similar situation where it is not possible to obtain an inspection, then know this is an extra risk you are taking and account for it in the bid. However, if you are in a position to have an inspection period, even if it is a short one, take advantage of the opportunity and account for any costs you will incur for making the additional repairs that were found and needed for resale. Hopefully, your first flip will turn into many more, so make sure you are working with a capable contractor you trust.
- Price the home correctly. Nobody has a crystal ball and can tell you exactly what the home will sell for. If you are in a planned neighborhood with good turnover and sales, that property will be easier to price than a custom home on acreage in an area with fewer sales and less apples-to-apples comparisons. Make sure you are pulling the correct area/neighborhood— for example, if you are comping a home close to the 51 freeway and look at all homes in a one-mile radius, you may be basing the price off homes that are on the other side of the freeway that sell for more. It is very important to know the neighborhood and pricing trends of the immediate neighborhood. The Cromford report and MLS are awesome tools to utilize if you know how to use them properly. Don’t be afraid to ask for a second opinion, I still do this often when I second guess myself. If you don’t know a Realtor that specializes in the area, I recommend reviewing the MLS to find the dominant agent in the neighborhood and offer a Starbucks gift card for their time to look over your deal.
- Have a mentor. If I could go back and do things over, this is one I would have definitely tapped in to. If you are new to flipping, if it’s been a while, and even if you are an expert, it’s imperative to have somebody you can go to with questions and challenges. I have a few friends in the industry who have been a wealth of knowledge and continue to teach me new ways to find and structure investment deals. Make sure your mentor is active and has had a good amount of successful experience. Don’t be cheap when it comes to paying for solid advice either, a good mentor will make you far more money than you pay them.
In summary, doing your due diligence is critical, but know that flipping homes is a risky business no matter how much homework you do. Make sure you are up for the challenge and don’t put all of your eggs in one basket. If you would like to see one of my profit and losses, please email Jennifer@Jenniferwehner.com and I will happily share. Cheers to a prosperous 2020!