Flipping home is not as easy it seems on television. I am sure we all have seen the HGTV shows that show how quickly you can become filthy rich by flipping homes. You get a great price on a distressed home of some sort, pay a contractor a reasonable fee to rehab the home, and then sell it for 100% plus profit. You might have a few roadblocks on the way to getting the rehab done, but for the most part, it always works out in the end because flipping homes is easy and carries no risk.
Wouldn’t this be nice if it was true. At Integrity 1st Real Estate, we help flippers find homes to purchase for their flips and then help them sell it after rehab is done (see more about our program here). Over the time we have offered this program, we have seen the bad, the ugly and the good when it comes to flipping properties. We have watched flippers learn hard lessons and seen them smiling when all goes according to plan.
In other words, we have some experience helping investors locate flips and then get them sold. We want to help others do the same. With this in mind, we thought we would share three things we would like to hear from flippers when they first come to us seeking our assistance. There are more than three, but we wanted to narrow down to the ones that we felt are the most important. We realize that not every investor will even use an agent, but if you are going to do so, you need to be sure to let them know at least these three things. They may seem basic, but it will help your agent to help you with your flip projects. It will make the HGTV vision seem a little easier to realize.
1. Here is what I am looking for in a flip… One of the first conversations you should have with your agent is your criteria for a good flip. When shopping for a flip, there is the standard formula of 70% ARV-Repairs = desired sales price (where ARV is after repair value) and the flip needs to be a cookie cutter home with three bedrooms, two full bathrooms and two car garage. After all, weird does not flip so you want to stay away from properties that don’t appeal to the majority of buyers. You should make sure your agent knows you are using these standard definitions of a flip, or if you are changing this around a bit. I have found that flippers in the last four years have been willing to come off the 70% ARV formula to be able to purchase something, anything in this tight market. With sellers basically getting whatever they want for their homes, it makes sense to lighten up this formula a bit. It is my understanding that most flippers are happy with razor thin profits as long as they stay in the game. Is this you? If so, please make sure to tell your agent. You need to also be sure to let the agent knows your budget for flips. Most flippers I know do not want to go over $200,000 on one flip (it used to be $150,000), but there are some higher end flippers who are specifically looking for leisure listings to sell. Finally, you should also let the agent know what level of repairs you are willing undertake. I see fire damaged homes, or some similar disaster home, and many investors don’t want the pain of having to bring this back to the ARV level. If you only want some cosmetic repairs, your agent needs to know because there are options for flippers who are looking to do minimal work and they don’t need to see everything when shopping for a flip. We vet all our properties before we send them out to the flippers on our list. We look at the standard formula and see how closely the property meets those basic numbers. If it does, we shoot it out to our mailing list. If it is borderline, we tend to look at the location and pictures to indicate to us if we should send it to our list.
2. I plan to buy the flip with and want my offers structured in this way… As with everything else in real estate, cash is king when doing flips. If you are fortunate enough to offer cash for your flip properties, you agent will need to know this and if they are good agent request that you provide proof of funds before showing you any homes. Why? Because agents are business people as well and do not need to be working with an investor that does not have the financial means to purchase a property. Cash also gives you more options on properties as many flip worthy properties do not allow any payment other than cash. Hard money lenders is another possible payment choice, which can be claimed as cash in the contract. However, we have been advised that the fact that you are using a hard money lender for the cash needs to be disclosed in the contract for liability reasons. However, hopefully the seller is knowledgeable enough to know that a hard money lender does not require a contingent on financing approval like a traditional mortgage so there is still a distinct advantage of using hard money over normal financing means. As far as the offer goes, you need to be sure the agent knows how much you plan to put down as earnest funds (1% is standard) and whether you want an option period (which we highly recommend, but can be a mark against your offer in a multi-offer situation). Do you want closing cost assistance or a home warranty with the property? If you want either of these things, you need to let your agent know. You also should be consistent on how you want to treat the survey/plat. Do you want a new one that you will pay for, or just have the seller buy one if their current survey is not accurate. Once an agent knows all these things, they can quickly put together an offer for you (we can do it in 20 minutes) and get the offer over to the listing agent with your proof of financial viability.
3. My rehab timeline and budget is…When shopping for a flip, it is always a great idea to let your agent know what your rehab budget and timeline will be for the flip. What difference does it make? For one, it helps the agent further analyze properties for you as a flipper. If the possible flip worthy property has too many repairs taking too much time to complete than the agent will know to refrain from even bothering you with the property. It also helps for the agent to know your contractor’s contact information so the agent can reach out to the contractor about the property and even arrange for them to see the property to get a possible repair budget. Contractors come and go pretty quickly based on the last rehab project they did for you. You might even ask your agent for some good recommendations on contractors. The agent most likely knows several in the area. You can call around to see which one works best for you and keep the agent in the loop so they don’t accidentally call an old contractor about a possible job (happened to me once).
You need to be sure that if you do decide to work with an agent on flip properties that you let them know three basic things. What kind of flip are you looking to get? What is your budget for the flip and how do you plan to finance it? What is your rehab budget and timeline? Once you let your agent know these three things, the process can be along more smoothly and quicker. If interested to know more about our flip worthy program, check it out here.