The Essentials of House Flipping

The Essentials of House Flipping

There is no shortage of advice for the fix-and-flip investor in 2019. An endless litany of websites, podcasts, and social media feeds shout tips, tricks and everything in between. But what does a fix-and-flip investor really need to know? What are the essentials of house flipping?

After more than 20 years helping fix-and-flip investors succeed, we’ve found it comes down to four essential questions. Knowing the answers to these questions will put you well on the way to achieving your goals and succeeding in this highly competitive business.

Essential Question #1: What is a good investment property?

What makes a fix-and-flip investment worth pursuing? That’s a simple question with a complex answer, one that cuts to the very heart of real estate investing. In short, it comes down to value. Certain properties are obviously more valuable than others, and understanding that value will make or break your fix-and-flip investing career.

Traditional measures of value apply to fix-and-flip properties as well. You’ll never go wrong considering factors like the quality of a school district, local population movement or overall market strength. But, for the fix-and-flip investor, it’s important to understand other factors as well. The most important of these is a calculation of a property’s value after it’s been renovated, or After Repair Value (ARV).

ARV is a measure of the value of a fix-and-flip investment property after it has been renovated to meet the standard of local comparable properties. Calculating a property’s ARV correctly will allow you to judge what you should offer for a property, what it will cost in repairs and upgrades, and what you can expect as net profit. When weighed alongside traditional factors, a property’s ARV will help you more accurately determine its value as an investment.

Essential Question #2: What makes a successful fix-and-flip investor?

As a fix-and-flip real estate investor, you’re in business for yourself and no one has more control over your success than you. In this respect, fix-and-flip investors have much in common with other entrepreneurs. Studying entrepreneurship, in general, can teach us a few important characteristics of successful fix-and-flip investors. The three most important are a goal-oriented mindset, patience, and discipline.

  • Like any entrepreneur, fix-and-flip investors should be goal-oriented. Setting goals can help you stay focused and motivated and is a good way to monitor your overall progress. Identifying and setting Specific, Measurable, Achievable, Relevant and Time-Bound Goals will help you hone your entrepreneurial mindset.
  • For fix-and-flip investors, patience and self-discipline go hand in hand. The real estate market (fix-and-flip or otherwise) is subject to change, and it takes both patience and discipline to succeed. A previously hot market may slow and a slower market may heat up, moving so quickly investors can get overextended. Having the patience to ride out market cycles and the discipline to stick to your investment plans can separate you from unsuccessful fix-and-flip investors. Crafting a well-made business plan will help you strategize your way through fluctuating real estate cycles, and sticking to your plan will help you avoid investment missteps.

Essential Question #3: How do real estate cycles affect the fix-and-flip market?

All forms of real estate investing are, at least in part, affected by market trends. Sometimes a hot market means properties will only be available for days or even hours. Other times, a perfectly good property may linger for weeks or months.

Many factors play into these cycles, but fix-and-flip investors should be especially aware of population movement, overall economic strength and construction trends.

Population movement affects the number of potential buyers entering or exiting your market of choice. If your market’s population is growing, that could bring more buyers looking for a deal. The U.S. Census Bureau has reliable information on population trends that may affect your investment strategy.

Considering the overall strength of your local economy can also give key insight into long-term fix-and-flip trends. If your market’s economy is heating up, real estate growth is likely to follow.

Finally, the construction of new homes can also be a noteworthy indicator of market cycles. When construction spending is on the rise, that can mean there is a short supply of housing in a given market. Monitoring construction spending with data (updated quarterly) from the U.S. Census Bureau can be a good starting point.

Essential Question #4: What should fix-and-flip investors read to learn more?

Business leaders across all industries list reading as one of the keys to their success. The same is true in real estate, where reading the right books can help you hone your approach to investing and business in general.

Anchor Loans CEO/President and co-founder Steve Pollack recommends Deep Work by Cal Newport. “Newport’s book opened my eyes to more efficient and productive ways to create more meaningful project results,” said Pollack in a rundown of the business books recommended by Anchor Loans staff.