Tag: flipper

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Flipping

How to Flip Commercial Properties

Source: Nastuh Abootalebi from Unsplash.

With 80% of office stock built in or before the eighties, many commercial spaces in the market have a huge flipping potential for real estate investors like you.


Large floor, concrete and glass commercial properties are tempting to reinvent from the ground up, as starting fresh may better meet the market’s demands. Even after the industry taking a big hit due to Covid-19, the industry is still trying its best to stay afloat.

Flipping commercial properties shouldn’t involve much hassle and should land you impressive profits… If done right. Before you invest, consider the top factors to ensure a successful commercial property conversion that results in profits—not stuck with a property nobody wants.

Let’s discuss all that below.

Know Commercial Property Types and Uses

Consider the needs of each property type and use. Different commercial property types have different purposes. Before you decide how to flip a commercial property, ask yourself, “Does this property have all the features and factors that’ll make it attractive to buyers?”

For example, office spaces are typically leased for businesses, and retail properties are used as storefronts. Industrial properties are ideal for warehouses or factories, while vacant land is perfect for development projects. Multi-family buildings are often associated with residential housing but can also include spaces for restaurants and local businesses.

If you’re flipping a property for office use, does the property have sufficient parking spaces? If it’s a retail space, can it accommodate heavy foot traffic (if there’s any nearby)? Think of what the end-user will prioritize, because that’s what the buyer will focus on—and so should you.

Moreover, take a look at the trends of each commercial property type. For instance, office spaces became risky investments over the pandemic, where companies implemented hybrid and remote work setups. The trend brought the vacancy rate of office spaces up to 15.4% in Q3 of 2022. In contrast, industrial properties and multi-family buildings only have 4.4% and 6.0% vacancy rate, respectively.

So, take advantage of properties with low vacancy rates or located in areas with limited space for new developments. Those spots offer a good supply and demand situation for your investment, where low-supply, high-demand markets make flipping commercial properties to sell at a high price easy.

Calculate Property Values & Demand for Accurate Pricing

There are several ways to determine a property’s value. You can run with one or be a perfectionist by using each method (we recommend the latter!). Ultimately, you’ll want to choose the methods that make the most sense for your project goals.

By calculating property values, you’ll know how much the property is worth when you sell it. In return, you’ll know how much you should spend to acquire the property and flip it.

#1 Determine the After-Repair Value Using Sales Comps

The After Repair Value (ARV) of a property represents the estimated retail price once it’s renovated. By determining the ARV of a property before purchase and renovation, you’ll know how much you can sell it and see if it’ll generate enough profits.

Now, the easiest way to figure out the ARV is by analyzing comps. To run comps, check similar properties within a quarter to half-mile radius. Identify at least three properties that have sold in the last six months that are comparable in size, type, features, and year built to ensure the most accurate valuation of your potential commercial property.

Next, calculate the average price per square footage of the comps you’ve identified. See how much per square foot they cost, and use that rate to estimate how much your property can charge. Here’s the formula for determining the estimated ARV using comps:

ARV = Average Price per square foot of comps multiplied by the square footage of your property

$1,440,000 = 120 per square foot x 12,000 square feet

In the above example, your commercial property will likely sell for roughly $1,440,000. Is that enough, considering how many renovations you’ll do? Determining the ARV allows you to decide if the property will generate enough returns for you to make a flipping profit.

#2 Capitalization Rate

Capitalization rates (or cap rates) allow you to estimate the return of investment (ROI) of a property. Your buyers will use the cap rate formula to see how much they’ll earn in relation to how much they’ll spend to purchase and operate the commercial space. The higher the cap rate, the more the buyer can earn from it, the more you can potentially charge for the commercial property.

Here’s the cap rate formula to see how much income the property will bring to the owner per year:

Cap Rate = Annual Net Operating Income divided by Price or Value

10% = $150,000 / $1,500,000

There’s no one ideal cap rate because there are a lot of factors that affect a property. However, analysts say a “good” cap rate is around 5% to 10%. Anything below that range is a less risky investment, as it’ll take more time to recover the investment cost—buyers wouldn’t want that, and neither should you.

#3 Estimate Flipping Costs

When planning a renovation, it’s essential to get an estimated repair cost (ERC) so you don’t go over budget and deplete your margins for good flipping profits. After all, no buyer is going to invest in an overpriced property, even if you’ve added all the best features and used the best materials.

To get the ERC, obtain cost projections from professional inspectors and establish a range for the total expense. Don’t just work with one inspector, too. Like how we’d get second opinions from doctors, get multiple opinions from inspectors to have a clear view of the rehabilitation spent.

Here are some tips:

  • Two estimates: Ensure that contractors take unforeseen repairs into account. They should also give two price scenarios, so there are fewer surprises during the flipping process.
  • Accountability: Hold all subcontractors accountable for the prices they provide. Don’t allow them to change mid-way, or it defeats the whole purpose of estimating your flipping costs.
  • Final walkthrough: Conduct a final check with each subcontractor. Double check to ensure that they didn’t leave out any potential cost overruns that’ll dig you into a financial hole.

Unless you’re a contractor yourself, work with licensed contractors to get detailed breakdowns of the cost and a timeline to finish the project. Doing so will ensure that you have a comprehensive budget in place and an accurate timeline that makes sense with the market behaviors to maximize your profits.

Repositioning Commercial Properties for Excellent Flipping Profits

With the expectations that office rental vacancies are going down this 2023, it presents an opportunity for investors to take that leap and flip. Still, it’s crucial to make informed decisions about which properties are worth putting your time into to reap the rewards and avoid the pitfalls of a hasty investment.

There are still a few risks when it comes to investing in commercial real estate (or any investment for that matter), but you can challenge the curve by doing your research and preparing before any purchase. Reposition them if necessary to meet the market’s demands!

Ultimately, choose the right property, anticipate the possible renovation costs, and read the market’s behavior, and you’ll maximize your profits in the end.

Are you interested in flipping commercial real estate and want to know more about it? Join us as a REIA member and attend our upcoming meeting! We also have a newsletter, so you’re never out of the loop.  

Categories
Flipping

the Flipping Forecast for Detroit in 2023 and Beyond

A kitchen after a flipper renovation.
Photo by Aaron Huber

During the height of the pandemic, the real estate market took a big hit. Large markets like New York felt a significant decline in pending house sales, with a hefty 58% decrease. And in our case, the City of Detroit took an even more severe hit, losing 74% of pending sales.

However, when stimulus packages started rolling in during the latter half of 2020, housing sales came back with a caveat. For example, list prices spiked 27% due to the revived increase in demand. This is bad news for house flippers, as finding good deals is significantly more challenging.

Still, with the pandemic in the rearview mirror, it’s time to look at how the real estate market is shaping up in 2023. And more importantly, is it a good time to build your home-flipping portfolio this year?

Real Estate Trends for the City of Detroit, MI

To try and curb inflation, the federal reserve is looking to increase interest rates across the board.

Just this February, interest rates are up and are expected to keep rising in 2023. That being said, inflation is still going strong. We’re looking at incremental interest rate increases throughout the year.

This results in a more challenging time for house flippers to get financing for their flipping project. To give you an idea of how the real estate market looks in the city, here are some trends we’ve observed:

  • Days on the Market: On average, properties stayed on the market for 36 days as of November 2022. It’s an improvement from the earlier half of last year’s average of 44 days on the market. Flippers might have an easier time selling their flips because buyers are more willing to buy.
  • Average Home Price: Compared to June 2021, home prices increased by 38.3%, from $72,500 to $100,205. The increase means house flippers like you might see lower returns on investment because buying a house requires more capital.
  • Average Sale Price: The average sale price of a Detroit property is identical to its average home price and set a new record by surpassing the $100,000 at $100,250—an increase of 38.3%. This isn’t necessarily bad news, as you might earn a bigger profit when you sell your flip.
  • Number of Listings: The number of listings increased from 2021 to 2022 by 38.9%, going from $1,983 to $1,428. This figure means that you’re off to a good start, as there are more houses on the market that you can list as options.
  • Total Sales (Unit): The total sales took a hit in 2022, by -10.1%, from $424 to $383. Your flipping projects might fall through because fewer people are buying, so you need to prepare a good exit strategy , just in case.
  • List Price: In January of this year, the year-over-year home prices were at an increase of 6.7%, and the average listing home price was $80,000.

Despite the climbing interest rates, the Detroit real estate market continues to climb in price, and the economic outlook in the City of Detroit is shaping up to be moderately positive this 2023.

Of course, we’ll have to wait and see if the interest rate hike will affect the situation, but it seems like 2023 is still a great year for you to potentially expand and earn from your flipping projects—as long as they make sense for your budget and risk appetite.

Flippers should Approach the City of Detroit Market with Cautious Optimism in 2023

Despite society moving on from the issues we faced during the pandemic, real estate prices continue to skyrocket. Sure, there’s pressure for the federal reserve to implement schemes to ease inflation, but various other factors also affect the housing market.

Regardless of what happens, the City of Detroit is still one of the most affordable areas, with its median sale price of $100,205, which is around 4x lower than the US median sale price of $405,900.

You’ll continue to find hidden gems in the famed Detroit real estate market to continue building your portfolio. Just be careful and get into projects that are guaranteed success, which you can do by joining as a REIA member, signing up for our newsletter, and meeting other investors in our upcoming meeting.

Leave a comment below if you have any other thoughts about the forecast for 2023!

Categories
Flipping

5 Tips to Flip a Really Old House (Challenging but Possible!)

The interior of an old home with aged wooden frames and dry leaves
Source: Mahdi Dastmard on Unsplash

Countless shows have entertained us with the possibility of flipping an old house (over 50 years old) for profit. It used to be simple, too: find a run-down house, fix it up, and sell it for easy money.

However, in today’s market, flipping a house has become much more challenging. Properties are increasingly more expensive to buy and fix up, and more and more wholesalers vie for the same investors.

And everything is exponentially more complicated if you flip an old house—the lower the starting point, the rougher the road is to flipping success.

So how can you flip an ancient house? Here are five critical tips for house flippers to remember.

1. Pick a Home in an Excellent Location

You can change everything about a house except for its location. So pick a home in a good neighborhood, often categorized by its amenities (e.g., near schools, public transportation, etc.).

No matter the potential you see in an old home, never choose one close to the freeway, with a high crime rate, or anything unappealing like that. Nobody wants a pretty property that’s in a terrible location. Instead, purchase a home in a prime location, and you’ll appeal to many potential buyers.

2. Check Your Numbers, and then Check Them Again, & Maybe Again!

How much is the house worth? How can you get it under the market value so you’re making money right off the start? Moreover, how much will it cost to bring it up to a sellable standard?

Knowing your numbers is vital in all real estate investments, but it’s especially crucial to flip an old home.

If you’re not experienced in answering any of the questions we’ve mentioned above, you’ll need to hire these professionals:

  1. Real estate experts to know the estimated property value
  2. Contractors or inspectors to determine the estimated renovation costs (ERC)
  3. Real estate agent or broker to determine the after-repair value (ARV)

These professionals will help you flip an old home, especially given how tricky it is to renovate and know the value of a subpar property; doing things yourself might lead to underestimating or overestimating the cost and value, which could put your entire investment at risk.

3. Understand What Needs to be Done—and What Really Doesn’t

A home inspector can help you understand what needs to be fixed in a house before you sell it. Oftentimes, old houses need work in these areas:

  • Outdated outlets and electrical systems
  • Outdated heating systems (HVAC units)
  • Obsolete plumbing systems
  • Foundation issues
  • Deteriorating roof
  • Hazardous building materials
  • Old windows and door frames

These structural issues are called the “bones” of a house because they’re essential parts that make up the structure and safety of the property. You can get away with ignoring other cosmetic details like paint colors or flooring when flipping an old house, but you absolutely cannot ignore the bones. If any of these areas are not up to code or need significant repairs, it will be especially difficult (and expensive) to fix before selling. Contract a professional inspector to confirm the condition of an old home before you buy to stay in the clear.

4. Find Reliable and Honest Contractors for Repairs

Once you’ve bought the house and know what needs to be fixed, it’s time to find a contractor.

A lot of people try to save money by hiring an unlicensed contractor, or by avoiding getting  multiple bids from different contractors. As a result, they often overspend on repairs or end up with a subpar repair job. Cutting corners can cost you thousands of dollars and cause significant delays in selling the property.

Find a good contractor by following referrals from friends, family, or other real estate investors who have flipped homes before. Once you have a few referrals, interview each contractor, get multiple bids, and check their licensing and insurance.

Here are the two categories of contractors you’ll choose between:

  • General contractor: If you choose a general contractor, you’ll only have one point of contact who’s in charge of managing the entire project from start to finish. A general contractor should be someone who is capable of managing every step so you can trust them the entire way.
  • Subcontractors: If you choose to go with subcontractors, you’ll do the overall managing yourself and have a group that includes electrical, plumbing, HVAC, framing, insulation, painting, and flooring professionals. You’ll also need backups to these roles so you’re never left hanging if one subcontractor calls out sick.

A good contractor is honest about the repairs that need to be done, gives you a fair price, and has a good reputation. Don’t be afraid to negotiate with contractors—remember, it’s your money and your investment, so you should feel confident in getting the best value for the repairs.

5. Build More Time than Usual Into Your Timeline

Old homes usually need major modifications and there’s bound to be a surprise or two!

You may need to redo narrow staircases, hallways, and doorways. Moreover, you’ll likely have to take down walls and rearrange the layout to modernize the old home by creating larger living spaces.

You’ll likely touch every part of the house—the electrical, plumbing, framing, and more—and you’ll need to strictly stick to your timeline to cover all the necessary steps. You don’t want to skip, delay, or rush any of those steps, either, (like installing drywall to see immediate improvement) because the structure or “bones” is what truly makes the property valuable.

Essential renovations take time and careful planning; don’t get too excited with the finishing stage.

Instead, plan ahead realistically, stick to your timeline, and schedule when each subcontractor should start their part of the project (if you’re not using a general contractor). You’ll make much better use of your time without sacrificing the quality of the finished property.

House Flips for Huge Profits: Old Homes for New Money

Have cautious optimism when flipping an old home. As long as you understand what you’re getting into before making an offer, lend your due diligence to inspections and contractors, and have a solid plan for repairs, you can make a tidy profit by flipping an old home.

Do you need more help flipping old homes? Sign up as a member, subscribe to our newsletter, and join us in our upcoming meeting! Stay updated with the latest tips and tricks by joining a community of like-minded individuals for your real estate investment journey.

See you in the winner’s circle!

Categories
Flipping

5 Easy Ways Flippers Can Spruce Up the Lawn Before Sale

Source: Curbed

Are you getting ready to flip a house? If so, it’s important to make sure the outside looks as good as the inside.

After all, no one wants it to look like a neglected eyesore or it will scare away any potential buyers. And yet, you have to strike a perfect balance because you don’t want to spend too much time or money on it either.

In the house flipping industry, time is money—the longer you spend remodeling the property, the less profit you earn. Landscaping tends to eat up a ton of time and effort, which means that if you’re investing in long-term lawn care, you’re not flipping fast enough.

On average, flippers spend between 5 and 10% of their budget on landscaping. This may not seem like much but you’d be surprised at how much value this brings. In fact, studies have shown that sprucing up the lawn can increase the home’s value by as much as 20%.

That’s a lot of additional profit for each flip. But this isn’t the only reason why you should invest in landscaping. Keep in mind that construction work to renovate other parts of the property will likely mess up the yard, so much so that you might need to redo the entire lawn.

So, let’s take a closer look at how you can effectively spruce up the lawn without going over budget.

How to Spruce Up the Lawn Without Breaking the Bank

No flipper wants to dedicate a huge swath of their budget to landscaping. So, here are a few cost-effective tips for you to improve the lawn without going over budget. The goal is to ensure that the home will attract potential buyers—notably, the target market that you want to reach.

1. Remember Your Audience

Before going crazy with your landscaping to-do list… first, consider what your target buyers will want. For example, if you’re hoping to sell to an older group of people, then perhaps it would be better to not have a lawn at all since they may not want to regularly maintain it. Young professionals, however, would likely opt for a patio or outdoor deck to entertain their friends, rather than a high-maintenance yard.

But if you’re targeting families, then feel free to go level up the landscaping. Chances are, these buyers are prioritizing wide open spaces for their kids and pets to play in. In fact, not having a poorly-maintained lawn may turn them off from seriously considering your property.

Apart from your target buyers, also consider what real estate class the neighborhood, tenant pool, and property belong to. For instance, it won’t make sense to create a beautifully-landscaped lawn for a Class C home since an expensive feature to maintain would be the last thing its tenants want.

2. Make the Grass Greener

A well-manicured lawn and tidy garden can go a long way in boosting your property’s curb appeal. The grass, in particular, has the most visual impact on guests when they first see the house.

Simply adding either fertilizer or grass seeds can go a long way. In fact, do this the minute you start on the flipping project. That way, the grass will already be fuller, healthier, and much greener by the time you’re finished and ready to sell.

As tempting as it is to constantly mow the lawn, it actually puts stress on the grass, especially if you trim off more than 20% at once. So check the cutting height of your lawn mower before turning it on and going to town with it, and ensure that you’re not mowing the grass too often.

This shouldn’t stop you from regularly pulling out the weeds, though. After all, who wants to see an overgrown lawn?

3. Edge the Lawn

If you want the lawn to appear tidier to potential home buyers, use an edger to trim the grass along its perimeter. Doing this creates a crisp and neat border that will make your property look cleaner and more professional, undoubtedly increasing its curb value.

Edging can also highlight landscaping design elements, which is important if you want to draw a buyer’s attention to a particular area of the lawn. It also prevents weeds and turf grass from growing into flower beds, so you no longer have to worry about the aesthetic appeal of your blooms.

4. Don’t Forget the Grass Clippings

For many, grass clippings are sent straight to the garbage can. But for flippers, they’re heaven-sent. Rather than bagging them after mowing the lawn, leave them where they are. Since they’re small and comprised of mostly water, it won’t take them long to break down and fertilize your garden.

However, make sure to clean up the grass clippings from your driveway, the sidewalk, and the other hard surfaces surrounding your lawn.

5. Invest in Lawn Repair Mix

You can easily fix bare patches on the lawn with a lawn repair mix, which typically consists of compost, fertilizer, and grass seedlings.

For better results, remove the dead grass and loosen the soil until at least three inches below the ground. This will give the lawn repair mix enough space to grow. Take care not to overwater this spot to prevent the seeds from scattering.

Sprucing Up the Lawn Won’t Break Your Budget

As always, the goal is to create a lawn that fits the criteria for selling that particular property to a particular target market. You don’t want to spend too much time, effort, and energy on a project that won’t pay off. In all flips, the faster you sell it, the more money you’ll get to keep, so make sure that your remodeled lawn will help you earn the profits you want.

In this article, we proved that landscaping projects aren’t as scary, expensive, or as time-consuming as you think they might be. With just a few easy fixes, you can increase your flipping profits without spending too much time and effort beautifying someone else’s lawn.

For more house-flipping tips, reach out to our team of experts at Logical Property Management. We’ve been serving the Metro Detroit real estate market for more than two decades now, and have everything you need to succeed in the area.

Categories
Flipping

Build Your Flipping Empire: Step-by-Step House Flipping Business Plan (Part 3)

The white chess player uses his bishop to take the black chess player’s knight
Source: Mesh on Unsplash

As the popular saying goes—” before you sell anything, you first have to sell yourself.” This statement holds true even In the house-flipping business.

Although flipping mainly deals with selling properties, don’t forget that you also have to deal with flippers, real estate agents, buyers, sellers, and other counterparts in the real estate industry. Because of this, in order to do good business and close flipping sales, you’ll first have to market yourself to establish business relations.

Why Market Yourself?

Apart from wondering how to market yourself using the SWOT analysis, you might be wondering why marketing yourself is even necessary.

To help you answer this question, we’ll ask you another question—as an investor, would you put money in an investment you’re not convinced will grow? You probably answered no. The same goes for lenders, investors, and other business prospects in the real estate industry. Before they shell out any money and do work with you, they first need to convince you’re worth the investment.

And how do you market yourself? By showing what you can bring to the table as a house flipper and why your house-flipping empire will be a success. And that is exactly what your SWOT analysis can do.

What is a SWOT Analysis?

The acronym SWOT stands for strengths, weaknesses, opportunities, and threats. The information in its subsections shows your capabilities and how you work as a house flipper in relation to competitors and your place of business.

Through your SWOT analysis, you can be accurately assessed. In effect, this will help lenders, investors, and other prospective business associates determine whether they want to work with you.

Take a look at this generic SWOT analysis to help you form an idea of how it works:

Source: ProjectCubicle.com

Chances are this is the first you’re hearing of a SWOT analysis since it’s not often used in real estate businesses like house flipping. However, its lack of commonplace use shouldn’t diminish its value.

Remember that house flipping is a business and the SWOT analysis plays an integral role in any business plan.

To help you grasp how you can leverage a SWOT analysis, here are three things you need to take into account: you or your company, your competition, and external factors. Think of you and your competition as the players, the external factors and the place as the stage, and house flipping as the game.

The more knowledge you have of the game, the better you can play it.

If you’re here from previous installments of the house-flipping business plan series, we’re happy to have you back for our third and final installment. If you missed the first two, be sure to check it out so you’re up to speed. In previous installations, we discuss the importance of a house flipping business plan[1]  and the step-by-step process of making one[2] .

Here’s a chart that shows a SWOT analysis tailored for a house-flipping business plan:

Now that you have a general idea of the SWOT analysis’ role in a house flipping business plan, let’s dive in deeper and go through each subsection in detail. As we break down the 4 subsections, we’ll also tackle how you can leverage these to market yourself and your company.

Your Flipping Strengths

What advantage do you have going into the house-flipping business? Are you starting off with capital or partnering up with someone who already has experience? List down what you and those you work with can leverage and explain why these are valuable.

Here’s a list of questions to get started:

  • What is your competitive advantage (against other flippers in the area)?
  • What resources do you have that you can take advantage of?
  • What part of your flipping business is performing well above average?

For instance, starting out with capital means you don’t have to worry about securing loans or partnering with investors. Having your own finances to pull from lets you move more independently without relying on third parties for funding.

Showing your strengths is the most persuasive point of a SWOT analysis and is the main determiner of whether people want what you can provide. Your strengths also set what’s expected of you as a house flipper, so be careful not to under or over-sell yourself and highlight your strengths honestly.

Your Flipping Weaknesses

Where do you fall short in the house-flipping business? As important as it is to acknowledge your strengths, it’s equally important to acknowledge your weaknesses. If you’re partnering up or working under someone, this is where they’ll form accurate expectations of you.

For instance, if your network consists of young individuals, your flips will likely be within the city near office buildings. In this situation, you’re likely more familiar with flipping small houses for one or two people. A weakness here can be having no properties outside of the city or a lack of experience dealing with larger houses.

These are some questions you can ask yourself:

  • Where in your flipping business can you improve?
  • What part of your business is underperforming?
  • Where are you lacking in resources?

Identifying your weaknesses also lets you identify areas of improvement so you can actively work on becoming a better house flipper. Although weaknesses show your limitations, this can also work in your favor when doing business with others.

As strengths set what they can expect from you, weaknesses show what they can’t. By considering both your strengths and weaknesses you can be more accurately assessed as a house flipper.

Your Flipping Opportunities

These are external factors that work in your favor. Ask yourself: Which market can you tap into? What are people looking for? Which factors can help me close more deals?

When you identify the opportunities available in your area of business, you can gauge which house flip projects can turn a profit and increase the chances of a return on your investment.

For example, here are the following statistics:

Given these statistics, there is an opportunity for flipping houses that cater to young, new families, which is where your business is focused on.

If you’re still not sure where your opportunities are, here are some questions to get the ball rolling:

  • What new markets can your business explore?
  • What other investment routes can your business potentially consider?
  • What technology can you use to improve your operations?
  • How else can you expand your core operations?

By narrowing in on house flips with more profitability, you also increase the confidence of prospective business partners, lenders, and investors to work with you.

Your Flipping Threats

On the other hand, threats are external factors that set limits to your house flips. These external factors are often beyond your control, such as the local weather or building policies.

For example, Michigan experiences winters with temperatures as low as 18°F, so you might run into homes that require more winter-proofing, like replacing HVAC systems or adding more insulation. Threats like these can be laborious, requiring you to assess properties with more care.

These are the questions you’d want to ask yourself:

  • What local and state regulations threaten your operations?
  • In what ways are your competitors doing better than you?
  • What are the market shifts and trends that threaten your business?

Moreover, identifying your threats is essentially stating the factors that you can’t be held accountable for, so you can be assessed fairly.

For instance, if you’re being assessed based on a past project that experienced weather-related delays, that shouldn’t reflect badly on your work ethic as a house flipper. You can also think of your flipping threats as a kind of disclaimer.

Is the SWOT Analysis Worth it?

Challenges and growing pains are inevitable when you’re starting a house-flipping business. But remember that you have the power to make the journey easier with a SWOT analysis.

The insight you’ll get from conducting the analysis then becomes your handy cheat sheet. You can now enter the house flipping game with substantial knowledge, fully knowing how other players are doing on the stage, and exactly how you’ll give your business a leg up.

As always, remember to take your time conducting a SWOT analysis with careful consideration. It plays a major role in your house-flipping business plan, so let’s not get too hasty with it.

Be a House Flipper Worth Working With

A house-flipping business plan that comprehensively addresses all possible queries will leave no room for doubt that you will succeed as a house flipper.

This is your chance to lay down the foundation you need to build your house-flipping empire. Use the SWOT analysis as a marketing tool to show others that you’re prepared, knowledgeable, and set up for success—perfect for doing business in the long run.

This is the final installment of our 3-part house flipping business plan series. If you haven’t checked out the two previous installments, you can find these on the links above.

What other real estate business plans do you want us to discuss? Let us know in the comments below! And should you have more concerns, get in touch with us today.

Categories
Flipping

Flipper Insurance? Here’s What You Need to Know

A pair of carpenters need to work on house renovations
Photo by Annie Gray

By buying valuable properties at a low price point, you can set yourself up quite well. The better the deal, the better margin for your fix-and-flip projects—but there is always risk involved in the house flipping business. From carpenters dealing with heavy machinery to construction workers on ladders…

A flipping project can be a hotbed for injuries.

For example, over 30% of yearly ER visits in North America—or about 9 million visits—come from people falling off ladders. With danger constantly lurking on your worksite, you’re going to want some protection. And flippers need specific insurance that covers their type of work.

In this article, we will talk about the types of insurance you need when flipping houses.

What Kind of Insurance Covers House Flipping?

No one ever plans on things going wrong while flipping a house, but they do happen. That’s why it’s essential to have the right insurance in place. But regular insurance won’t cut it for house flipping, and homeowner insurance won’t cover it, either, because it’s considered a high-risk environment.

So how do you get good insurance coverage?

Well, you need to look into 3 types of insurance:

  • Dwelling Policy
  • Builder’s Risk Policy
  • General Liability Umbrella

Each insurance covers a specific area, which we will discuss in detail.

#1 – Dwelling Policy

A dwelling policy is an insurance that covers a vacant property under renovation from physical damage. Attached structures like garages and porches are also covered. Unlike homeowner’s insurance, a dwelling policy doesn’t include personal belongings, only the structure itself is insured.

With a dwelling policy, your property is protected against damage caused by:

  • Fire
  • Lightning strikes
  • Heavy winds
  • Hail
  • Explosions
  • Vandalism
  • Theft
  • Vehicular accidents

However, depending on your insurance plan, things like vandalism might not be covered. We will talk about the type of plans in a later section.

#2 – Builder’s Risk Policy

This type of insurance covers physical damage to the property during the construction process. Like the Dwelling policy, it will protect a home from the same sources of damage. Generally, the builder’s risk policy can be thought of as an add-on to the dwelling policy.

However, a builder’s risk policy includes additional coverage for the materials and tools needed to repair the property. With a builder’s risk policy, you can keep your building materials and tools safe from damage.

#3 – General Liability Umbrella

This insurance can cover you and your investors from liability for accidents and injuries caused during your home flipping project. For example, if a carpenter gets injured while working on your property and sues you for damages, the general liability umbrella can protect you against financial losses.

But keep in mind: The general liability umbrella only covers you, but not the workers and contractors you hired. This means that if they cause an injury while on-site, they won’t have insurance to protect them against liability.

The Different Types of Coverage

When you buy insurance, it comes in different levels of coverage to choose from. A basic package might have minimal coverage while higher levels of coverage can protect you more.

Generally, there are 2 types of coverages you need to consider:

  1. Basic coverage – This will cost less but will exclude protection from certain factors. For example, vandalism, theft, and water damage usually aren’t covered by a basic package.
  2. Special form coverage – This protects you from all sources of loss except for explicitly mentioned sources that are indicated in the contract.

Depending on your situation, you might need more than basic coverage. For example, if your property is in an area that experiences heavy snowfall—like Alta, UT, which experiences around 457” of snowfall annually—you should definitely get the special form coverage.

How Much Does Insurance Cost?

Unfortunately, there isn’t a clear-cut answer as insurance costs vary by region and other factors. Also, insurance prices have no direct link to property prices. Plus, the status of the location usually determines insurance. For instance, If an area is more prone to natural disasters, it will have higher insurance premiums.

Let’s take Detroit as an example. The area is susceptible to heavy rains and harsh winters, so insurance is more expensive in Detroit. The national average insurance price is $1,312 annually; meanwhile, Detroit’s averages are around $2,237 per year.

In short, depending on the location, insurance prices widely vary.

Protect Yourself From Liability While Flipping Houses

Flipping houses isn’t all sunshine and rainbows. Accidents can happen while rehabbing a property. If you’re not insured, you might be facing heavy losses due to lawsuits.

To avoid losing money—money better spent on your flipping project—to lawsuits and damages, get yourself insured. With a dwelling policy, builder’s risk policy, and general liability umbrella, you can protect yourself and your property from damage and losses.

Do you have any insurance tips for house flippers? Tell your story below!

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