20 Jan Fixing And Flipping Houses: Important Questions To Ask (part 1)
Let me start out by saying that I do think the best way to build wealth is through buying and holding real estate. But, there is a great opportunity in fixing and flipping houses if you do it at the right time and the right way.
As a real estate investor, you need at least 2 or 3 income streams from real estate. The primary way is to buy and hold properties, take the excess cash flow from rents, put the profits into your pocket, and buy more houses. If you’re an active investor, you will always be looking for new properties in an area. Sometimes, though, you will come across a house that will better serve you as a fix and flip property. Fixing and flipping houses is a great option if you need cash somewhat immediately OR you know that a property would sell really quickly in a certain market. Ideally, you want to use the cash from fixing and flipping houses to purchase more buy and hold properties.
With that, here are the first 7 of the 14 questions I ask myself when fixing and flipping houses!
- Do you know where you are in the real estate cycle?
You want to start flipping when the demand starts to increase.
2. Do you know the area?
I bought a property at Harbor Cove Beach when I initially did not know the area. So, I called real estate agents and asked them what problems they were most prone to see in local properties. Two things surfaced: a lot of houses had EIFS stucco, which is a form of stucco formed from styrofoam (something you want to avoid in more humid areas!) The second common issue had to do with the way the trees were planted. The roots severely affected the plumbing in some areas. Asking around is an easy way to make educated purchases and save yourself a lot of time, energy, and money!
3. Would the home conform to FHA lending guidelines after repairs?
The Federal Housing Administration has specific guidelines for properties that people must abide by when they receive loans through them. Interested buyers may be ineligible for your property if you don’t do your homework and ensure the house abides by FHA guidelines!
4. Will you make money when you buy?
Don’t buy if the margins are too tight. The return formula I like to use is 10-20%. Essentially, for every $100,000 invested, you want to make at least $20,000 in profits after all expenses.
5. Is it a normal neighborhood?
You want to avoid businesses and apartments for fix and flips. If you can, you want to be in the bread and butter, Mr. Rogers type neighborhoods. In other words, it needs to be a nice, solid neighborhood with good people living in it.
6. Do you feel safe at night?
Visit the house at night and pay attention to how you feel. Sit down and pay attention to what the light looks like and what sounds you hear. Do the same thing during the day. You want to do your best to put your buyers in a comfortable situation, and you want to buy properties that you can get rid of quickly!
7. Can the renovations be completed in 60 days?
The key to fixing and flipping houses is to get in and out quickly. (The best are done in less than 30 days, but cap your timeframe at 60!) Time is money! If you’re borrowing money to buy it, then you acquire more interest the longer you hold a property.
Next week, I will share the rest of the 14 questions you MUST ask when fixing and flipping houses. Another big thing is happening next week, too— my new book, ‘Strategic Real Estate Investing’, launches on January 26th! You can preorder it HERE until that date for a reduced price of $16.99. It includes an expanded version of these tips, plus so much more exclusive content!