#1 You Make Money When You Buy & Collect When You Sell
Perform the proper due diligence upfront to determine the maximum purchase price you should offer before you buy the property. Be conservative with your analysis and build-in ample profit and contingency for your repairs. Don't overpay for a flip or you are setting yourself up for a total flop!
#2 Avoid 'Eraser Math'
When you put 'pencil to paper' and analyze the numbers of the deal, don't erase the numbers just to make the deal work. Don't worry about what the seller is asking for the property. Analyze your numbers and come with your own offer price.
On my first flip I had analyzed over 50 deals and made offers on over 25 houses before I had my first offer accepted.
This was frustrating and I started to second guess my numbers and my spreadsheet. "Am I being too conservative with my numbers or too greedy with my profit?"...
I had the urge to do 'eraser math' and fudge the numbers to make the deals work.
On my first flip, I decided I can probably 'do some of the work myself' to help save on labor costs and make the deal work.
Sure enough, the offer was accepted, but I had got myself into quite the pickle 🥒 because now in order for the deal to be profitable I was obligated to do some of the work myself while working 50+ hours a week at my Corporate job!
#3 Location, Location, Location
It's better to have a bad house in a good area, than a good house in a bad area. You can change the house, but you can't change the neighborhood or the location. Buying houses in desirable areas that have low crime rates and good schools will be much easier to sell quickly and for top-dollar.
#4 Don't Do Something Too Big
Don't buy an extensive gut rehab or tear-down for your first project. Repair costs are difficult to estimate and contractors can be hard to manage. Start with a small cosmetic rehab to get your feet wet and move your way up to more complicated rehab projects as you gain more experience.
#5 Get Your Finances in Order
Real estate is an expensive game and you will need to have money or access to money to purchase properties and pay for repairs. Before you buy your first flip project you need to have your finances in order and/or lenders lined-up to fund your projects.
#6 Don't Over-Improve the Property
It's easy to get carried away with improving your property by putting ship lap on every wall, but certain improvements can be a total waste of money.
Do your research on comparable properties in the area and spy on your competition to determine which improvements, features & finishes homebuyers expect for homes in your target price range. You will ultimately want to provide an end product that equals or slightly exceeds comparables in the marketplace.
Any improvements or finishes that substantially exceed comparables in the market may not receive full credit from the appraiser & will likely provide little ROI.
This is something I personally struggle with. I want everything in my flips to be brand spanking new & look like a magazine cover, but unless your are competing in high-end markets with flippers like Chip & Joanna Gaines you don't need to have shiplap on every wall.
Spy on the competition, research comparables and stick with improvements & finishes that match your target price range and you will keep more money in your pocket!
#7 Don't Plan on Doing Everything Yourself
Unless you are a full-time Contractor by trade it's generally a bad idea to assume that you are going to do most or all of the work yourself. If you don't know what you are doing leave the work to the pros and focus your time and efforts on work that you enjoy and are qualified to do.
When in doubt, hire it out!
As mentioned above in #2, I did a little bit of 'eraser math' and fudged the numbers in order to make the deal work.
I assumed that I was going to do some of the work myself in order to save around $10k in labor costs on the project. I assumed I could do the demolition work, exterior painting, interior painting & some miscellaneous carpentry work. Well, I had a full time corporate job that required 50+ hours a week, so it was really a living nightmare to work nights and weekends rehabbing a house, just to make the numbers work!
In your initial deal analysis always assume you will be hiring a Contractor to do the work. Once you get a property under contract, if you want to DIY some work to save money on labor costs you always have that option, but assuming you will DIY work upfront to make the numbers work will paint yourself into a corner.
#8 Do Things Right!
Take pride in your craftsmanship and homes that you renovate. Make sure that you pull permits, don't cut corners and do things right. Your reputation is on the line!
#9 Doing One House Flip Will Teach You More Than All of the Real Estate Seminars & Books Combined!
You can go to all of the house flipping seminars, take all of the house flipping courses and read all of the house flipping books in the world, but you will learn the absolute most by buying and rehabbing your first flip!
#10 Just Get Started
There will never be a 'perfect' time for you to get started. Stop making excuses, and just get started!