Tag: property flipping

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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.  

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Flipping

Netflix & Flip: 5 Best House Flipping Shows to Watch in 2023

Source: Nolan Issac from Unsplash.

House flipping is all the rage right now. We all love them, whether we’re expanding our house-flipping portfolio or watching home renovations for fun. There’s nothing quite like seeing a run-down house turn into a beautiful home.

If you’re looking for some inspiration, here are a few of the best house-flipping shows of all time. You might even pick up a few pro tips that you can use in your house-flipping projects down the road.

#1 – Holmes Family Rescue

Does the name Holmes sound a bit familiar to you? You might have heard about Mike Holmes from Holmes on Homes. Holmes Family Rescue is a new show that now includes Mike’s son and daughter.

A Canadian series that debuted in 2021, it follows dissatisfied homeowners whose properties were ruined by low-quality construction.

Luckily, they’re saved by Mike Holmes, a general contractor, along with his 2 kids, who are home renovation experts, Michael Holmes, Jr. and Sherry Holmes. As a family, they show empathy and commit to their mission, “Make it right.”

If you’re not a big fan of the glamorized version of house flipping, then Holmes Family Rescue is the show for you. This show is a great option if you want to learn more about repairs and renovations.

In each episode, Mike, Michael, and Sherry show the substandard work done on the property and explain in detail how they should have been executed correctly. They also talk with the homeowners, asking them to describe their experience with the original contractor and how it affected the way they live now.

Holmes Family Rescue currently has 1 season and is renewed to have another season and will premier in the spring of this year.

Watch Holmes Family Rescue on HGTV.

#2 – Stay Here

Streaming giant, Netflix, is also riding the house-flipping trend with Stay Here.

In this reality show, you follow along with interior designer Genevieve Gorder and real estate broker Peter Lorimer. In each episode, the duo gives serious TLC to a short-term rental home, transforming it into a moneymaker for its owner.

One of the best things about the show is that it features unique vacation rentals, including a houseboat in Seattle, a firehouse in Washington, and a brownstone in Brooklyn.

Apart from remodeling these, Genevieve and Peter also provide viewers with updates on real estate industry trends, as well as advice about finding success in this line of business.

Currently, there’s only 1 season. Although, fingers crossed because there are rumors that season 2 will be released in August of 2024.

Watch Stay Here on Netflix.

#3 – Home Town

If you’re interested in learning what it takes to remodel historic properties, then Home Town is the house-flipping show for you.

It features Ben and Erin Napier, a husband-and-wife team restoring beautiful Southern homes in Mississippi using up-cycled materials to retain the property’s old rustic charm.

The couple is known for infusing their clients’ characters into the homes they remodel.

For example, one episode featured a local restaurant owner looking to settle into a cozy cottage with her grandmother. They ended up with a custom-built rolling kitchen island and a handmade raised garden bed. Both of which were inspired by their personalities.

If Home Town leaves you wanting more, I have some good news for you. They also have a spinoff called Home Town Kickstart.

Watch Home Town on HGTV and Home Town Kickstart on HGTV.

#4 – Designed to Sell

Want awesome tips and tricks that will help make your properties sell?

Sit back and tune in to Designed to Sell, a show where each 30-minute episode features a home that has sat unsold on the market for a long time. Real estate experts and general contractors are then given $2,000 to renovate the property to the best of their abilities.

Because of this limited budget, this show is perfect for flippers who want creative design ideas while getting the most bang for their buck.

It also highlights the country’s most cutthroat real estate markets—Los Angeles, Chicago, Atlanta, and Washington, D.C. Unfortunately, Designed to Sell ended; although, there’s still a backlog of episodes to enjoy.

Watch Designed to Sell on HGTV.

#5 The Flipping El Moussas

You might know Tarek El Moussa from Flip or Flop. Unfortunately, Tarek and his past partner have broken up and gone their separate ways. Although Flip or Flop is still a must-watch if you haven’t seen it, we’re moving forward to the next reiteration of the popular program.

Tarek is now married to Heather Rae, a famous real estate agent from the Netflix series Selling Sunset. Together, they’re a power couple who are experts in their own fields. They’re unstoppable with Tarek’s experience in flipping homes and Heather’s eye for high-end real estate.

In the first episode, Tarek and Heather take on their first project together. It’s not an easy ride because there are already some issues with the odd floor plan and uneven floors. But, are their combined knowledge and work experiences enough to conquer this issue?

This show is so new that it just aired this year. Follow along their journey as they expand their business (and family) together.

Watch The Flipping El Moussas on HGTV.

What Else is on Your Watch List?

House flippers need to stay updated with the real estate market to earn profits and with the current design, and trends to create appealing homes. And there’s no better inspiration than the hit shows we’ve listed above. We’re sure there’s at least one series for you—whether your niche is in historical homes, vacation rentals, or luxury properties.

What other house-flipping shows have you enjoyed? Is there anything on your watch list that we didn’t include here? Let us know in the comments—we’d love to hear from you!

And become a member today to join our upcoming meetings and receive our newsletter. You’ll get insider knowledge and learn from experienced flippers in the industry just by being a part of our group.

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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!

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Flipping

Flip Responsibly: 8 Legal Risks You Must Know About House Flipping

Source: Zillow listing in the City of Detroit

We get it. It’s scary to get into real estate investing, especially if it’s to flip a home.

Countless shows have “proved” flipping to be easy, but the reality is much more challenging. As a house flipper, how much money should you spend on the renovation? How fast do you have to complete it?

And, most importantly, how can you flip a house legally?

Well, you must know eight legal risks when doing house flips. You may be in trouble if these aren’t handled properly, so we’ve outlined the most crucial house-flipping legal risks below.

Risk #1: FHA Re-Selling Restrictions

The Federal Housing Administration (FHA) is the largest mortgage insurer worldwide and gives mortgage insurance for loans made by approved lenders. Unfortunately, the FHA also places several restrictions on its mortgages, which limit how often a home can be bought or resold.

For example, known as the “anti-flipping rule,” you must wait at least 90 days before selling or flipping an FHA-financed home. Moreover, any resale between 91 and 180 days where the new property price exceeds its previous price by more than 100% will need more documentation for the FHA.

Risk #2: Building Codes and Zoning Regulations

Ensure that the property you buy complies with all local building codes and zoning regulations. Failure to do so can result in costly fines for both the buyer and the seller. So, take your time researching local laws to stay updated with any changes in any area before flipping a house.

Risk #3: Right of Rescission Rules

Be aware of any “right of rescission” rules that may apply in your jurisdiction when transferring property from one party to another. These legalities can vary by state, but they provide rights and protections if a homeowner wishes to back out of an agreement within three days of signing the contract.

Risk #4: Real Estate Contracts and Disclosure Statements

It goes without saying (rather, we wish it could) that you should understand the contract that you’re signing when purchasing a property. Read through the entire thing carefully and ask questions if there are any items that aren’t clear.

What novice flippers might miss, however, are the disclosure statements that must be included in real estate transactions, like lead-based paint disclosures or radon gas disclosures. Not complying with these regulations can result in fines and lawsuits against your flipping business, so always double-check.

Risk #5: Financing Fraud

Document everything thoroughly when financing a flip project. You’ll want to do this because lenders are tightening up, most notably regarding mortgage fraud and loan misrepresentation.

Refrain from misleading them about your financial situation to secure financing for a property, as failure to disclose all necessary information can lead to serious legal repercussions. And once again, fully understand the terms and conditions of any loan you take out.

Risk #6: Fair Housing Laws

Fair housing laws protect buyers from discrimination based on race, religion, gender, or nationality. As a flipper, you must abide by these laws and never discriminate against potential buyers when marketing your flipped home. If found in violation of this law, you risk heavy fines and even jail time.

Violations include, for example, sending out a direct mail advertisement for a home featuring only families with young children and not mentioning any other age groups or demographics—it’s considered discrimination.

Risk #7: Mortgage Loan Fraud

Chances are, you don’t have enough cash on hand to purchase your property. So, you’ll likely involve banks and lenders to finance your project.

Lending can become a cycle: you take out a mortgage to purchase the home, the next buyer acquires their own mortgage to buy the home from you, and so on. That cycle becomes ripe for mortgage loan fraud, where the buyer misrepresents their financial situation to get a larger loan.

To avoid fraud, request proof of income and other documents when dealing with buyers. You can also use third-party services that review potential buyers’ credit scores and verify their employment history before they purchase the home from you. These practices will help protect you from any fraudulent activities.

Risk #8: Issues With the Property Title

You may notice a lot of affordable properties in the market to flip for a significant profit. But between lenders, borrowers, real estate agents, and more, it can be challenging to know who owns the property you’re looking to flip—who can legally sell it to you.

So, before you acquire any property, ensure that you have title insurance to verify the title’s status on your behalf, and do your due diligence before making any major decisions. As much as possible, you should avoid dealing with fraudulent titles or legal disputes that could arise from a previous owner.

House Flipping With No Legal Repercussions

House flipping can be an incredibly lucrative business venture. By understanding these legal risks upfront, you’ll be in a much better position to have a large profit margin when entering this endeavor.

Just remember: consult with a local attorney if you have questions or concerns prior to doing any real estate transaction. Ensure that everything is done in accordance with all applicable laws and regulations to truly (and surely) build your house-flipping empire .

Do you need more help in house flipping? Join as a member, subscribe to our newsletter, and attend our upcoming meeting to stay updated with the market. You’re only as strong as those around you!

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Taxes Made Simple for House Flippers

Source: Zillow

House flipping is a popular real estate investment strategy in which investors purchase properties, usually at a significant discount, fix them up and then resell them for a profit.

While the practice has been around for decades, it only gained popularity recently, particularly in the wake of the housing market crash of 2008, when many homeowners lost their homes to foreclosures—leading lenders to sell for cheap, and investors to buy rundown homes to rehabilitate and sell at profit.

Still, interestingly, house flipping is not just for professional real estate investors. Anyone can be a house flipper with the right knowledge and drive. In fact, many first-time investors have found success in this niche market—we’ve seen it happen.

If you’re thinking about getting into house flipping, there are a few things you need to know about the tax implications of this type of investment. Check them out below.

1. Document Every Expense!

As with any other investment, you must keep good records when flipping houses.

This will help you in two ways:

  • Doing so will make it easier to calculate your profits (and taxes owed) when you sell a property.
  • It will give you the documentation you need if the IRS audits you. As you can imagine, flipping houses can generate a lot of documentation, so it’s essential to have a sound system for organizing and storing your records.

2. Expenses to Deduct During Tax Time

If you’re flipping houses, there are a ton of expenses you can deduct when it comes to tax time.

There are two main types:

  • First, just about everything you spend buying, fixing up and selling the property.
  • Secondly, your business expenses, like auto payments, gas, for your auto, computer stuff, marketing the property, even snacks you buy for the contractors!

Say you spend $10,000 repairing and renovating a house that you sell for $50,000. In this case, you can deduct the $10,000 in expenses from your profits, leaving you with a taxable gain of $40,000.

3. You’ll need to pay capital gains tax on your profits.

When you sell an investment property, you must pay capital gains tax on any profits you earn. Capital gains tax is simply a tax on the profit you realize from the sale of an asset. In the case of house flipping, your asset is the property itself.

The good news is that there are ways to minimize your capital gains tax liability.

For example, if you hold the property for more than one year before selling it, you will be eligible for the long-term capital gains tax rate which is generally lower than the rate for short-term gains. Additionally, you can take advantage of certain deductions, such as the costs of improvements made to the property.

4. You may be subject to self-employment tax.

Another issue you can face is if you’re flipping houses as a business venture—then you may be required to pay self-employment tax on your profits. Self-employment tax is essentially Social Security and Medicare tax for the self-employed. The current rate is 15.3% which includes the employer and employee portion of the tax.

However, there are circumstances under which you may not be required to pay self-employment tax.

For example, you may not be subject to this tax if you’re flipping houses as an individual investor (rather than through a business entity). And if your total income (including your flipping profits) is below the self-employment tax threshold ($400 for 2019), you will also be exempt from paying this tax.

Of course, nobody is going to flip a home for a mere $400. But you get the point.

5. You can avoid capital gains tax via a 1031 Exchange.

Let’s suppose you’re looking to reinvest your profits from a house flip into another property. In that case, you can do so without paying any capital gains tax by taking advantage of the 1031 exchange provision. This provision allows investors to defer their taxes by rolling their profits into a new investment property.

For example,  if you sell a house for a $50,000 profit, then you can use that money to purchase a new investment property without paying any capital gains tax on the sale.

The negative of doing a 1031 Exchange is that you can’t use any of the funds from the sale to live off of.

6. Other taxes depend on your location.

In addition to federal taxes, you may be subject to state and local taxes on your house flipping profits.

These taxes will vary depending on your location, so it’s important to check with your state and local tax authorities to determine what you’ll owe. For example, in some areas, you may be required to pay transfer taxes when you sell a property.

7. You may be required to pay estimated taxes.

Next up, if you’re flipping houses as a business, you may be required to pay estimated taxes on your profits. Estimated taxes are periodic payments made to the IRS throughout the year, based on your expected tax liability for the year. They’re due yearly on April 15th, June 15th, September 15th, and January 15th.

If you fail to make your estimated tax payments, you may be subject to penalties and interest. Therefore, staying on top of your estimated taxes is crucial if you’re flipping houses as a business.

Uncomplicated Tax, Uncomplicated Profits

We hope this quick overview gave you a better understanding of the tax implications of house flipping.

As with any type of investment, it’s important to do your homework and consult with a tax professional before getting started. But if you’re looking for a lucrative investment opportunity, house flipping may be just what you’re looking for.

Maximize your flipping profits today! Join as a REIA member, attend our upcoming meetings, and sign up for our informative newsletter. We can help you take care of all the details, from repairs and renovations to accounting and taxes.

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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

House Flipping Business Plans: How To Create One (with Examples!)

A rehabilitated home in North End, Detroit
Source: Detour Detroit

Flipping real estate makes for a great reality TV show, but it can also be a lucrative investment strategy if you know what you’re doing. What they rarely show on screen, however, is the importance of having a business plan for flipping homes—one that we’ll provide for you in this article.

Read on for our house-flipping business plan template!

The Ultimate Business Plan Template: Planning for Success

The goal is to build a solid foundation that serves as your living roadmap for your house-flipping empire. Only when you have the goals and action steps in place can you put yourself toward investment success, attracting real estate investors, financial partners, and home buyers to work with your company.

Here are the 8 steps you need for a thorough house flipping business plan:

Step 1: Mission & Vision Statement

Start by creating your mission and vision statement. Change the following placeholders:

[Company Name] [what you do] [what you offer] to [who your customers are] with [your benefits, e.g., faster, more reliable, lower cost].

Here’s an example of a great house flipping business plan:

Flipping Fortunes finds, fixes, and sells fixer-upper homes to investors and homebuyers in the City of Detroit. Unlike other companies, we are Detroit locals and partners of Logical Property Management company that has been operating in the area for more than two decades.

Step 2: Products & Services

Next, list down all your company’s services and support each title with a short description. Here’s what it may look like for Flipping Fortunes, the fake house flipping business we used earlier:

Flipping Fortunes will provide these services for investors and home buyers in Metro Detroit:

  • Complete property restoration or renovation: Our team will scout, inspect, budget, and manage property flipping projects from start to finish. Home buyers and property investors can then purchase affordable, quality homes at a fraction of the cost of a newly built home.
  • Professional assistance for house flipping projects: Our team will help real estate flippers and DIY home flippers with everything they need to complete their flipping projects, including connections to professional inspectors, licensed contractors, and experienced real estate agents.

The more details you can add, the better. After all, interested real estate investors and financial partners will want to know everything your company can provide for them before engaging and signing the dotted line with you.

Step 3: Management Team

In this section, you want to explain more about the “who” of your business. Is your team composed of knowledgeable and experienced real estate experts who’ll live up to your company’s promise?

Here’s a quick example:

  • John Doe, CEO: Licensed real estate broker and property manager for the past two decades. Doe began as a real estate wholesaler before spending most of his career working with several agencies and property management companies. In all of his ventures, he always specialized in house flipping projects, having now flipped more than 250 projects.

Be sure to include each individual’s expertise, experience, knowledge, and everything else that can prove their capability and solidify their role. The higher you can lift your team members, the more trust you’ll gain as a company.

Step 4: Success Factors

Next up, what needs or specific niche are you addressing in the particular real estate market? These things are crucial for getting financial partners to join your venture, convincing them ‌you have a great business idea on hand.

Here’s an example of what a success factor could be:

Flipping Fortunes addresses the growing niche within the Metro Detroit real estate market. Our team opens opportunities for valuable fix-and-flop projects, making it easy for investors and home buyers to get their slice of the confusing yet high-performing hotspots in the tri-county area.

Pro Tip: You can also conduct a SWOT analysis to get a clearer picture of your strengths and weaknesses as a company.

Step 5: Target Market

As with any business, your house flipping company’s success depends on the supply and demand, as well as the cost of labor and value appreciation of the renovations. You don’t want to offer your services to a place that doesn’t need them.

Instead, your goal is to identify where you can “sell” most of your flipping services to a large market for many years to come.

Step 6: Business Entity

To operate your business legally, ‌choose a business entity and register for your business in the state you’ll operate in. There are many business entity types to choose from, but we recommend that go with one that has limited liability protection, like an LLC or corporation.

Liability protection is crucial for a house flipping business, as there are many things that can go wrong. For example, someone can sue your company because of a property you’ve flipped—where you’ll want to ensure that your personal assets remain protected.

Pro Tip: Consult with a business attorney to learn your options and weigh them accordingly.

Step 7: EIN, Insurance, Permits, & Licenses

It’s also important to ensure that you have the required documents to run your business. Oftentimes, banks and private investors will want to see this anyway. After registering your business, go through the following processes before officially starting operations:

  • Register for an employer identification number (EIN), which you’ll use for tax purposes, applying for business loans, or apply for business bank accounts and credit cards.
  • Look into business insurance options, especially if you’re going to hire employees. You’ll need workers’ compensation, unemployment, and disability insurance. Moreover, research about general liability and commercial property insurance to protect your assets.
  • Obtain the property business licenses and permits for your state and scope of work. You might need to get several permits to work in the construction business. You can also check with your local chamber and business attorney to ensure that you have the complete paperwork.

Step 8: Financial Summary

Lastly, ensure that your flipping business will generate high returns—both for you and for your investors. Here are a few ways you can get financing:

  • Through friends and family loans: Also called Patient Capital, this is when you fund your projects with personal loans from family members, friends, or partners. It’s low stakes and an easier route than traditional bank loans.
  • Tapping into your 401(k): If you don’t plan on retiring ‌soon, you can take a loan out of your 401(k)—either from the classic 401(k) loan or a ROBS loan.
  • Combining financing options: You can also find success in using several financing options to purchase and renovate your properties.

Start Flipping & Start Generating Profits

As your company grows, the projects will naturally increase in complexity and number as well. That is why having a business plan is important, especially if you want to attract investors. Your investors should see that you do your due diligence before putting any money on the line.

Have any more questions? Drop them in the comment below!

Categories
Flipping

Why You Should Always Target Distressed Properties to Flip (And Where to Find Them)

Creepy old mansions may be a nightmare for most people, but they’re hidden gems for a house flipper. These oldie-but-goodie properties are examples of how distressed properties have great value within them, giving real estate investors opportunities to gain massive flipping profits.

Why are there distressed properties in the first place?

Well, there are a lot of reasons why a home could become neglected. Here are a few examples:

  • The home could’ve been a foreclosed home left to someone as inheritance, but it’s located far from where the person currently lives. The home left behind will often go into probate for a year, during which time the new owner cannot touch it. That means it’ll sit for a year, quickly deteriorating.
  • The home could’ve gone through a natural disaster like a flood or tornado, and the owner doesn’t have the funds to repair it. It’ll also sit there rotting away.
  • The home could’ve been a rental that a tenant trashed and the landlord can’t take it anymore—not bothering to fix the home up again.
  • The home could’ve been owned by a hoarder with low income. They pay taxes, sure, but they don’t have the money, skill, or energy to keep the house in good condition.

Any of these situations leave many homes neglected and, eventually, distressed. However, while these homes are someone’s problem, they’re certainly your investment opportunity.

Here are a few reasons you should buy distressed properties, and how you can find these lucrative deals.

The Flipping Opportunity with Distressed Properties

To understand how the concept works, we need to first discuss how a home becomes a distressed property. So, here’s what usually happens:

  1. Owner Hardship and/or Neglect: Owner of a property loses their job, becomes ill or perhaps relocates. They may also inherit the property.
  2. Property Deteriorates: The issues above lead to the property falling into disrepair. At a certain point, potential buyers either don’t want to take on the repairs or can’t get a standard mortgage on it due to the poor condition.
  3. Cash Opportunity: At some point the homeowner will try to sell the property. Or maybe a motivated flipper can convince them they should sell. Either way, they will have to sell at a discount due to the lack of market demand for the property when it’s in poor condition. 

Situations like these give you opportunities to buy properties at a low price. These distressed properties are ideal for flipping because they’re rundown homes with tons of hidden value. Yes, they’re cheap because they’re in poor condition, but the lack of market demand will drive the market value even lower than the cost of repairs. 

The Risks and Benefits of Flipping Distressed Properties

Now, while the benefits of flipping distressed properties sound exciting, there are certain risks you’ll need to consider before committing to one. Here’s a chart to help you see the full picture:

The benefits are great, but the risks are inevitable. By anticipating the potential issues that sometimes arise with distressed properties, you’ll be ready to handle high-risk, high-reward fix-and-flip projects without a hitch.

Ways to Find Distressed Properties

You won’t find “distressed property” a common label in the real estate industry. Instead, you’ll need to think more strategically about how to find situations that will have motivated sellers. 

Thankfully, there are several ways to seek out distressed properties. Here are some of them:

  • Drive For Dollars: Select a neighborhood and look for homes with obvious signs of neglect. These can be signs like multiple notices on the front door, peeling and faded paint, an unkempt yard, broken windows, or uncollected mail.
  • Access the Multiple Listing Service (MLS): If you can find a way to access the MLS (say, if you have a real estate license or a friend who can help you), you can find distressed properties with remarks like,  “handyman special” or “fixer upper”. The longer the property stays in the MLS, the higher the motivation of the seller.
  • Find Foreclosed Properties (REOs): Peruse REO and bank-owned properties to find good opportunities. Lenders and banks aren’t in the business of keeping properties, and want to get rid of these non-performing assets as soon as possible. They will likely sell the homes to you at a discount.
  • Identify Homes with Delinquent Mortgage Payments: You can find public records of delinquent mortgages at your local courthouses. Individuals who can’t pay their mortgage are likely willing to sell their home to avoid foreclosure. 

You can also try to find motivated sellers with delinquent property taxes, as they’re likely behind on mortgage payments as well.

  • Consider Probate Options: You can visit the probate court to find properties left behind by situations such as divorce or death in the family. In some cases, the family left behind might not want the home. That said, keep in mind that you’ll need a special process to make an offer, since the property will be sold through an executor or attorney.
  • Get in Touch with Out-Of-State (OOS) Owners: Whatever the reason is for them moving to another state, some homeowners struggle to maintain the properties they can’t visit often. The result is distressed properties with highly motivated sellers. You can identify these people through direct mail or networking.
  • Check City Records for Code Enforcement Tickets: A property getting numerous tickets for neglect is a sign of an owner not taking care of their property and may be interested in selling.

Conclusion

Distressed properties are the perfect choice for house flippers since your goal is to acquire undervalued properties with the highest flipping profit. By buying valuable properties at a low price point, you’ll set yourself up to gain a large margin for a profitable fix-and-flip project.

What is your experience with buying distressed properties? Do you have any tips on successfully flipping them for a high profit?

Image courtesy of Malte Luk

Categories
Flipping

Top 5 Mistakes Novice Flippers Overlook (And How to Overcome Them!)

Reality TV shows may paint a picture of how easy it is to flip a property, but the actual reality is much more complicated than that. Unfortunately, beginner real estate investors often jump into the business without knowing anything about real estate and how it works!

In a nutshell, house flipping is buying a distressed property that you repair and sell for a profit. It’s one of the best ways to earn money from real estate, whether you do it full-time or only as a side hustle. In fact, flippers can make up to $25,000 profit on a typical house in the City of Detroit (provided, of course, that you follow the right advice). 

But like any business, house flipping takes knowledge, planning, and hard work to be successful. Without the proper guidance, you’ll only lose your hard-earned cash. 

So, here are five common mistakes that novices overlook and how you can avoid them altogether.

#1 No Market Knowledge

There’s more to house flipping than what you may know. One of the biggest mistakes new flippers make is buying a property that falls within their budget but is unfortunately located in an undesirable market. As a result, they end up stuck with a home they don’t need, with all their savings tied to an undesirable property.

Solution: Work with an experienced, local real estate agent who knows the real estate market well and can show you the ropes. Experienced agents will know things such as current market prices, what buyers are looking for, and the latest trends in the neighborhood. Then, continue learning by talking to other investors and following real estate investment blogs (like this one!).

#2 Investing Too Much Time and Money

The whole point of house flipping is to earn a good return on investment. But that is impossible if you spend too much money upfront. Moreover, time is also of great essence in the flipping business. On average, it shouldn’t take you longer than 1-2 months to sell it. The longer a property stays on the market, the more you have to pay taxes and maintenance. This increases your capital expenditure and squashes your potential flipping profit.

Solution: Follow the industry’s 70% Rule, which says you should only pay a maximum of 70% property value minus the repairs. This rule is significant for new investors who don’t have extra money to cover a project that goes sour.

For example, let’s say the property value is $200,000 after $10,000 of repairs. In this situation, you should spend no more than $133,000 to purchase the home ($200,000 – $10,000 x .70 = $133,000). If you spend too much money, you won’t be able to sell it for a significant profit.

On top of this, ensure that you work with a professional contractor before you purchase the property. They can inspect the home for you and provide an accurate repair cost for your budget.

#3 Overestimating Your Skill and Knowledge

Are you tempted to save money and repair the distressed property yourself? Keep in mind that so many things can go wrong if you don’t have the necessary knowledge and experience. It only takes one bad swing of the hammer to do irreversible damages to the home!

Solution: Start slow and look for homes that require minimal repairs (remember the 70% rule). You can gradually take up more complicated projects as you increase your knowledge and experience. Alternatively, work with a licensed contractor to flip the home for you so you won’t have to update the wiring and plumbing on a 60-year-old house.

#4 Miscalculating Cost of Repair

This is the most common mistake! 

One thing that most of the flipping & improvement shows get right is the “unexpected repair”. The demo crew opens a wall that exposes dry rot, termites, a major plumbing issue, etc. 

Miscalculating the cost of repairs can make your expected profits disappear. 

Solution: Look for projects that don’t require much work and talk to a trusted contractor to help you bring the home up to suitable standards. Also, build in 10-20% Cost Overrun in your repair budget. Don’t go overboard!

#5 Overvaluing the House

Finally, one of the classic rookie mistakes is estimating your sales price at the highest price possible. While this does happen, and it’s great when it does, you’re better off being a bit more conservative on your estimated sales price. 

Solution: Consult your real estate agent to land on a realistic price based on market analysis and careful consideration of the competition.  

Conclusion 

Home flipping is still a lucrative gig, provided that you are willing to invest the time and effort. While the concept is as simple as selling for a profit as fast as you can, there are so many pitfalls that can derail your efforts and put you in a financially difficult spot. 

Instead, learn from the mistakes of others! Avoid the top five mistakes novice flippers make to become successful flippers without burning cash.

Need more help in flipping houses? Feel free to get in touch. I’m more than willing to help you in your journey to become a successful house flipper.

Image courtesy of Sebastian Herrmann

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