In a recent post, House Flipping 101, we shared some foundational principles to set you up for success. We emphasized finding the right property, offered some broad-strokes tips on controlling costs, and provided quick tips on selling smart.
In this post, we take a closer look at the actual flipping process. Answer these three questions honestly and thoroughly, and you’ll improve the chances of turning a flipping profit:
Flipping Question #1: What’s Your Project Scope?
Assuming you applied the 70% rule to your house-flipping project, you already have a good idea of your budget and scope of work. But before you swing a hammer, you’ll need to create a detailed plan of action.
First, brainstorm a list of everything that should or could be done to improve the property. Yes, everything. Stand at the curb and assess the exterior of the property—front to back, side-to-side, lawn to driveway to roof. Then,head inside and move from room to room, noting all the possible tasks on one big, long list. Don’t try to do this sitting at your desk; physically moving through the house will help ensure you don’t miss anything.
Pro Tip #1: This is meant to be an overwhelming process. Go with it.
Next, separate your list into three categories:
- Must Do
- Should Do
- Could Do.
If you’re an investor and haven’t yet involved a real estate professional, now would be a good time to do so. A good Realtor® can help you determine-based on experience and the location of your flip-what’s worth improving and what you can let go.
When you’re confident you have every possible improvement in the correct category, take a big, fat marker and put an ‘X’ through the entire ‘Could Do’ column. You’re trying to maximize profits here, and those tasks will quickly chip away at your bottom line.
Next, beside each ‘Must Do’ item, write down a realistic estimated cost. Still have budget left at the end of that column? Great! Now do the exact same thing with the ‘Should Do’ column. If you get halfway through that second column and run out of money, go ahead and finish estimating the rest.
Finally, go back through both columns and highlight the tasks you can do yourself to save money. We’ll say more about this in Question #3.
Flipping Question #2: What’s your Timeline?
In house flipping, time is money. The longer you own that property, the more money you’ll dump into taxes, insurance, interest, utilities, and general maintenance. So, rather than taking a “let’s see what today brings” approach, sketch out a realistic start-to-finish timeline:
- Consider the order in which tasks have to be completed: permits (when necessary) come first, electric comes before sheetrock, roofing comes before gutters, and so on.
- Include time for inspections.
- Build in a little wiggle room for unanticipated delays.
Pro Tip #2: Where house flipping is concerned, it’s wise to expect the unexpected.
While you’re getting yourself organized in terms of time, develop a system for managing everything else—receipts, bills, bids, documents, inspections, and so on. Keep careful track of your expenses from the get-go so you’re more likely to stay within budget.
Flipping Question #3: Who’s on Your Team?
One of the most important decisions to make involves what, if any, work you can do and what you’ll be hiring professionals to handle. If you have a reasonable degree of DIY know-how, you may be able to save a ton of money by doing some of the renovations yourself. The key word here is may. For example, if you’re a decent painter but a professional could complete the job in half the time, you may not actually be saving money doing it yourself.
Also, ask yourself if you have the capacity to serve as your own general contractor for the project—in terms of both time and expertise. A contractor would manage the day-to-day components of your flip, along with unexpected developments. Plus, they’ll save you having to vet sub-contractors. If you decide to hand off the project management, you’ll need to spend time researching potential contractors, but going with a pro usually pays off in the long run.
Ready to become a flipping rock star?