When it comes to the many issues and pitfalls that can take a big bite out of your fix-and-flip project’s ROI, wasted time will be very high on the list. Every successful fix-and-flip investor knows that to keep ROI as high as possible, you’ve got to get your project’s turnaround time down to the least possible amount of days – without sacrificing quality. The good news is, you can shave days, weeks, or even months off of your house flip timeline with proper planning from the start.
If you are committed to keeping your fix-and-flip project on schedule, below are 5 important factors you should pay close attention to:
1) Do your homework before buying a fix-and-flip property
Before you sign on the dotted line on a fix-and-flip investment property, you’ve got to do your homework—thoroughly—if you don’t want to get sidelined by surprises that can slow down your project later, or bring it to a screeching halt for weeks at a time.
It’s not enough to know how to estimate your property’s ARV—although the value of your property after renovations will be a major determining factor in your ultimate ROI. Along with knowing the ARV, you should also have a clear and detailed understanding of the scope of work required on the project. Will you need to wait for permits before work can begin? Will flooring and cabinet installers and other workers need to wait weeks for repairs to the foundation, electrical, HVAC or plumbing systems? Creating a detailed punch list and a carefully planned construction calendar will prevent last minute surprises that can result in your project timeline being extended weeks or months.
2) Have a backup plan for budget shortfalls
Once you have determined the scope of work on your project, you will be able to draft a detailed budget that will include all of the costs associated with buying, improving, marketing and selling your property. If things go as planned, and there are no unforeseen issues to derail your budget, you can sail through the rehab and quickly find a buyer. Unfortunately, that perfect scenario is not often the case with fix-and-flip investing. Because most of the properties house flippers invest in are in need of repair, it is not uncommon for unforeseen issues—sometimes major issues—to arise mid-project. If you suddenly discover an expensive issue on your fix-and-flip project, do you have the cash on hand to take care of it? If not, your project can sit for weeks or months, while holding costs pile up, waiting for you to raise the funds needed.
If you are funding your fix-and-flip project yourself, be sure to add a buffer to your budget to accommodate emergency issues, or have a backup plan to fund those kinds of surprises. If you will be working with a fix-and-flip lender, ask in advance what your options are if the project is stalled due to unforeseen problems. Can your loan term be extended? Can you refinance the loan or can your loan amount be raised mid-project?
3) Hire only trustworthy contractors—and have several backup contractors on speed dial
This might seem like a no-brainer, but hiring the wrong contractors can be catastrophic to your ROI. There are too many horror stories of contractors showing up once and never coming back, or showing up just enough to be “still on the job,” but working so slowly the work barely progresses.
The best way to find a good, licensed contractor is through references—not a reference they provide—but one that you are sure you can trust. Ask your friends, family, and business associates if they know anyone who can perform the scope of work required on your project, and specifically ask about turnaround time. You need a contractor who does excellent work and can be trusted to complete the work on an agreed upon schedule. If there will be a need for permits on your project, opt for local contractors if at all possible—as many localities will require contractors to be locally registered, and you do not want to wait for your contractors to meet local qualifications.
For more information on selecting a contractor for your fix-and-flip investment, read our blog post “How to Properly Vet Contractors for a House Flip.”
4) Stage your property before listing it—even if you are on a strict budget
In a recent Real Estate Staging Association (RESA) study of 1,081 sold homes, unstaged homes spent an average of 184 days on the market (with no sale) before they were subsequently staged and sold. After staging the unsold homes, they sold on average in 41 days. Homes that were staged prior to being listed sold on average in 23 days:
Days on Market
|NOT STAGED at LISTING||Average 184 days on market|
|STAGED AFTER NOT SELLING||Average 41 days to sale|
|STAGED BEFORE LISTING||Average 23 days to sale|
This study does not tell us how much was spent on staging, and whether staging included complete furnishing of the home, or if it was limited to plants, artwork, mirrors and other smaller decorative items. However, what we can glean from RESA's research is that your investment of time and money into improving the experience potential buyers will have when they walk through your property (or view photos of it online) will help you sell your property much more quickly.
If you are already maxed out on spending on your house flip, a few thoughtfully placed items such as plants, candles and framed photos can warm up the interior of your home and improve its chances of attracting a buyer.
One option you should consider if you are on a strict budget is “virtual home staging.” With a virtual home staging company you send them photos of your empty rooms, and they digitally insert furnishings. These virtual home stagers provide high definition photos for a reasonable price that you can use for your online listings, and, you can have the photos printed out and displayed in the rooms to give buyers an idea of what is possible.
Be aware that there are real estate agents who know the value of home staging, and will offer to provide it free of charge. If your agent does not offer this service, let them know you don’t have room in your budget for staging and ask them if they will consider sharing the cost of a physical or digital staging fee.
5) Intervene quickly if your property is not selling
With each passing week that your home sits on the market, the ROI you've been counting on is being eaten away by holding costs. What do you do now? What does your plan B look like in a situation like this?
If you are operating in a market where homes are moving relatively quickly, but yours is not attracting buyers, the best thing you can do is address the possible problems with your property and/or the way it is listed as soon as possible.
The number one reason buyers will choose another property over yours is asking price. If all things are equal, and they can find a home like yours in their desired location with their same must-have amenities, the ultimate decision to buy will come down to asking price.
It’s important to remember that the amount you spent on renovations is irrelevant to buyers. You may think your inflated asking price makes sense because of the money you’ve invested in materials, appliances and other upgrades, but if other homes in the area offer the same room counts, square footage, materials, curb appeal and amenities, your flipped house will have to be priced to compete in the market.
Go back to the drawing board and compare your renovated project to homes in the vicinity that sold in the last three months. Make sure you are not comparing your renovated flip to dissimilar homes. Square footage, counter tops and cabinets, flooring, laundry, garage parking, pool, landscaping, etc. will all impact how well your fix-and-flip property compares with comps. For more information on how to accurately estimate the ARV for your flip project read "How to Analyze Comps to Estimate Your Fix-and-Flip property’s ARV."
Another possible reason your property is not attracting buyers is that they don’t know about your listing. All too often, sellers find out after weeks (even months) of sitting on the market, that their MLS listing was incorrect or incomplete. If your property is listed in the wrong zip code, for example, buyers in your local market may never see what your home has to offer.
With the advent of Internet real estate search engines, many home buyers are searching websites like Zillow and Realtor.com before they even contact an agent. Be sure your home is listed on these sites accurately and is showing up in those search engines–and be sure the filters (bedroom count, square footage, garage, and other amenities buyers are seeking) are returning a search result that includes your property.
If your fix-and-flip property is located in a market where there are plenty of comparably-priced properties like yours available, rather than dropping the asking price of your property multiple times, consider offering local agents a monetary bonus if they can get your house sold quickly.
For more possible shortcomings you may need to address to get your house flip sold, read our blog post "My House Flip Isn’t Selling: Now What?"
If you could use some trustworthy advice as you pursue your fix-and-flip investment goals, we encourage you to contact the experts at Anchor Loans. We’re here to answer any and all of your questions, and we look forward to hearing from you soon. Ready to apply for a fix-and-flip loan from Anchor Loans? Check out this helpful article on how to get approved.