If you are a fix and flip investor, the core focus of your house flipping business plan should be to maximize ROI. Although transforming an ugly outdated house into a stunning home is pretty satisfying in itself, the house flipping business isn't just about beautiful transformations--it's about return on investment.
House Flipping Business Success Requires Careful Planning
Experienced house flippers know that it's not enough to purchase a distressed property and spend a lot of time and money improving it with the hope that someone will pay enough for it to turn a profit. Success in the house flipping business depends on careful planning.
In fix-and-flip investing, if you don't plan carefully and if you don't really know your market, you could easily lose money on your project. It hurts to learn the hard way that regardless of how much money you've spent on upgrades and amenities, if there isn't a buyer in your market who cares enough about those amenities to pay your asking price, your flip can turn into a huge flop.
It comes down to knowing how to make good decisions that maximize ROI. Along with every challenging flip project you undertake will come dozens of key decisions that can make or break your bottom line. Whether it is the purchase price of the property, floor plan changes, design choices, materials, appliances or must-have amenities, each decision you make has to add enough value to your property's after repair value (ARV) that it will ultimately translate to a successful sale at a price that returns a sufficient profit.
Maximizing ROI with Each Flip Property
As you grow your house flipping business and you increase your number of successful outcomes, you learn along the way how to maximize profit and minimize any loss of time or money. You learn which contractors are capable and dependable, which vendors are fair and reliable and what materials are accessible and affordable. You also learn--sometimes the hard way--that not every improvement you can make to a flip property adds enough to the ARV to warrant the time and expense.
Critical Questions for House Flipping Business Success
Before jumping at the chance to buy an investment property, an experienced house flipper starts by asking some important questions:
Does the as-is value of this property warrant the seller's asking price, and is that price low enough to make a profit on the deal?
What upgrades and repairs are required to make this property competitive with comparable homes in the area, and when completed what is the estimated ARV?
Are there major issues with the foundation, plumbing, wiring, or any other potentially costly problems such as asbestos or mold?
Will I rehab the existing home, or should I demolish my flip property and build a new home from the ground up?
What are the highly desired amenities and upgrades buyers in the local market are looking for, and how much should I spend adding those to this property to give it a competitive edge?
What is the "heat" of the local market-- that is, how many days does a house typically sit in this market until it sells and how many months of holding costs (utilities, loan fees, etc.) should you be prepared to pay?
The answers to these questions will determine whether you should purchase the property you have in mind and at what price. Also, armed with detailed information about the as-is and after-repair values, as well as thorough research of local comps and turnaround times, you will know how to determine the best construction strategy for your flip property, how much you should spend on improvements, how much you should expect to pay in holding costs, how much you can list the property for and how much profit you could ultimately walk away with.