let’s talk : first FLIP preparation

Good morning! 

True life : I want to FLIP a house. We have spent the majority of the last 6 months working to acquire rental properties. I am not going to lie it has taken WAY longer and has been more discouraging than I had ever anticipated and I am itching to try and take on a new project. I have been bugging everyone I know about attempting a flip, and I am working to “prepare” myself the best I can.  Let me walk you through what I am doing to prepare and PLEASE tell me if I need to do anything else/ I am totally off/if you did the same thing/ if you  have any suggestions. Let us ALL know what YOU think!

So, as we do, let’s talk Real Estate, let’s talk FIRST FLIP PREPARATION…

RESEARCH

This is where I started. I have spent quite some time researching & taking notes on the following…

General rehab construction costs
Title transfer
Principles of real estate finance
Real estate marketing
Tax laws
Interior design trends 
Watching TLC / HGTV flipping shows (I know this is so not helpful I just like them and use this as an excuse to watch more of them)…

DEVELOP A BUSINESS PLAN

Our plan roughly outlines the following… 

Executive Summary / Mission Statement 

A one page description of what we are doing and why

Market Analysis 

 An overview of the  economic environment for any neighborhoods we may be interested in – we collected our data from sources like our agents, contractors, Zillow, Trulia 

Goals & Project Strategy  

Define the project scope and end goal

Budget 

Based on what I have read everything seems to cost more than you anticipate. I am working to develop a budget for rehab costs, monthly mortgage, insurance and tax payments. We have brainstormed a few different methods of how we are going to keep up with these payments throughout the project – will keep you posted on what we end up doing! Meanwhile, please let the group know if you have any suggestions on how to go about this! 

Timeline

Just like everyone says the project always costs more than projected, the project also always takes longer. I plan to develop a timeline with our contractors and I have been told to align financial incentives / consequences with the timeline to ensure everyone is on the same page. 

Exit Strategy / Back-up Plan

I have read about the importance of exit strategies- aka how to get out of the deal whether or not it goes to plan. So in every deal we look at, we are making sure we can at least rent the places out and breakeven in the event we are unable to sell the newly completed rehab.

CHOOSE A NEIGHBORHOOD

Do your research on both the local environment and properties (i.e. economy, city plans, market values & rental rates). I walked you all through how we chose our target neighborhood last week! If you haven’t had a chance yet and you’re interested, you can check out  last week’s note here :  PHILADELPHIA.

BUILD A TEAM

Real estate salesperson

We searched high and low (on Google & Biggerpockets) to find a real estate agent with investor experience

Construction Contractor

The TRICKY PART- investors are continuously saying to …

Get references from people you trust (Attempted to do this),

Obtain at least 3 bids (I have been trying to do this, seems to be easier said than done),

Have the contractors provide references (I have not had to formally request any yet),

Ensure the contractor is licensed and insured (Check),

Know the time frame of the project (Our agent was able to work on this for us for minor fixes),

Know the payment parameters (TBD – will keep you posted!),

Check if permit is required

Attorney

References can be helpful here too! The attorney we currently work with was active on Biggerpockets.com and I have to say is SUPER responsive when I send a million questions his way!

Lender

Many traditional banks prefer not to lend against rehab projects forcing flippers to use private and hard money lenders. I have chosen to network with lenders of all types (i.e. traditional, private and hard) just to play it safe and hopefully keep our options open!

 

FINACNING – COME UP WITH A  GENERAL GAME PLAN

It is a hard balance between making sure you have financing somewhat lined up before you even going looking for a deal AND not getting ahead of yourself if you don’t even have a deal to finance yet. I guess my biggest take away here is – make sure you can afford the deal via some sort of pre-approval / pre-qualification.  re: my note above on lenders – Many traditional banks prefer not to lend against rehab projects forcing flippers to use private and hard money lenders. I have chosen to network with lenders of all types (i.e. traditional, private and hard) just to play it safe and hopefully keep our options open!

 

FIND A PROPERTY

via Real Estate Salespersons, Wholesalers, Craigslist, Foreclosure Sales, Biggerpockets.com, etc. There are SO many different ways to find these deals! 

 

ANALZYE THE PROPERTY

We have a couple of different calculators we use here to keep checks in place and make sure the numbers work! Please feel free to email me if you want to see a copy!

 

PURCHASE THE HOME

If the numbers work, and you know you can get the financing – pull the trigger on the home!

 
REHAB TIME

Based on the countless number of blogs, podcasts and books I have researched…
The Do’s…

Do…develop a general scope of work for / with the contractors to review
Do…be present at the project

The Don’ts…

Don’t ….forget about building permits – make sure all updates are up to code
Don’t….go overboard with fancy finishes – this is an investment not your personal home (this will be hard for me – I can already tell)
Don’t…neglect easy fixes – buyers will notice
Don’t…forget to take advice from the pros – I am already trying to do this!
Don’t….prioritize speed over doing the job correctly 
Don’t…start a million different projects at once- especially on your first flip
Don’t…ignore the 70% rule – rule of thumb says initial Purchase Price = (After repair value * .70) – Repair Costs
Don’t….forget to rehab the outside of the home – I personally have seen SO many flips recently where the inside is immaculate and the outside looks as run down as it was originally WHY?! I am ALL about curb appeal
Don’t…try & do everything yourself- hire out what you cannot do yourself

 

FINAL STEP : SELL / BRRR

Once a rehab is complete the owners will either sell  or rent and refinance under the BRRRR strategy (Buy, Rehab, Rent, Refinance, Repeat). While I would LOVE to BRRRR one day, we have run the numbers and realized the Philadelphia market rental rates and the properties we are looking at do not really support this strategy. If we do take on a project there, it will be in our best financial interest to rehab and sell.

 

SO, QUICK OVERVIEW OF – WHAT EXACTLY HAVE I DONE SO FAR?!

Due diligence on the market and construction costs
Worked with an agent
Set up a new operating group outside of the rentals (LLC)
Received pre-approval for financing
Toured SEVERAL properties and reviewed the numbers and comps on our final 3

MY NEXT STEPS?

–   Put an offer on a property
–   Find a contractor
–   GET STARTED

What do YOU guys think? Have we checked all the “pre-flip” boxes? What are we missing here?!

Feel free to comment on the blog post and let us know what YOU think!

OH, and DON’T FORGET – I added two new features to the blog recently. Check them out…

Preferred Vendors : Here you will find businesses WE like to work with and support!

Book Store : Summer is just around the corner, THANK GOODNESS, which means it’s time to sit yourself down on the beach and catch up on some reading. I have reviewed a few of my favorite business reads! In case of interest, I have linked them on the Book Store tab for you!

Happy Wednesday!

Erin 

All data and information provided in this email is for informational purposes only. This email makes no representations as to accuracy, completeness, suitability, or validity of any information and will not be liable for any errors, omissions, or delays in this information or any losses, injuries, or damages arising from its display or use. All information is provided on an as-is basis

Data Sources for today’s content:

…Websites…
https://rehabfinancial.com/flipping-houses-101/chapter-1-how-to-start-flipping-houses/house-flipping-business-plan

https://www.diynetwork.com/shows/first-time-flippers/advice-for-first-time-flippers-pictures

…Books…

The Book on Flipping Houses : How to Buy, Rehab, and Resell Residential Properties by J. Scott

 

 

 

 

 

 

 

 

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