3 Simple Steps to Increase Profit When Flipping a Home

You just finished binge-watching HGTV. You’ve bought a house or two before. You’re pretty handy. You have some cash saved up. Why not try and flip a home?

It will be easy. Just find a home that needs a little work at a great price. You buy it, fix it up a little, and sell it quickly to make a lot of money. Soon you will be the next Chip and Joanna Gaines with your own reality show and design line at Target. Unfortunately, flipping a home and making a profit isn’t as easy as it seems on television.

This wasn’t our first flip or even our first foreclosure property, and we still made some big mistakes. Learning is our goal in everything we do. So, instead of keeping the lessons we learned from a tough flip to ourselves, we want to share them with you. Hopefully, they can help you if you are thinking about flipping a home.

Follow these three steps for a smoother and more profitable flip.

Step 1: Plan, Plan, and Plan Some More

There is no way around it. Fixing up a home involves planning before, during and after the renovation. If planning isn’t your jam, you may want to reconsider or find a partner who excels at planning.

Before Buying

Your main goal when flipping a house is to make a profit. If you want to make money in real estate, you need to understand the market. This means knowing neighborhoods, prices of comparable homes, and market conditions. Finding the right house to buy takes a lot of research and planning. We recommend working with an experienced real estate agent to help you find a home with high-profit potential.

During Renovation

You found a great home with high-profit potential, but it needs some work. You’re ready to jump right in and get going! Where are my safety glasses and sledgehammer? Whoa, carefully back away from the sledgehammer and pick up your computer or smartphone. You have some planning to do.

The home inspection report will give you a good idea of what major repairs need to be made. (This assumes you were able to get a good deal on a house because it needed some repairs that were not made by the original seller.) There are probably some cosmetic issues that you need to address, too. This is where the planning comes in.

Get Comfortable with Spreadsheets

In the world of planning lists and spreadsheets are your BFFs. Create a list of what needs to be done, major repairs outlined in home inspection, and what you would like to update, cosmetics such as paint, new cabinets, etc. Look at your list, and turn it into a spreadsheet. You need to figure out how much this will cost you and how long it will take. Start getting quotes from contractors for the items you will not be doing yourself. Do some online research to price supplies for those updates you will be making yourself.

Prioritize your list or spreadsheet based on your budget and timeline. What MUST be done? What can you afford to do after all the must-haves are paid for? This will give you your plan for how creative you need to get with your budget. Now it’s time to put the computer away and pull out those safety glasses and sledgehammer.

Map Out the Work

Planning the order of repairs and updates are made is also very important. The better you plan upfront, the more time you will save in the end. Repairs to plumbing and electrical or anything that is a potential safety concern needs to be completed immediately. Anything to the exterior, HVAC, roofing, and windows can be done anytime because other work can continue while they are being completed.

A good rule of thumb for completely redoing a room is t first demo, then paint, install flooring, and then finish with fixtures and cabinetry. If you are replacing lighting or switching up plumbing or electrical, then you will want to have those changes made before painting in case it impacts drywall or flooring. Whether you are doing the work yourself or hiring contractors to do some or all of the work, the order it is completed is important. You’ll need to think about the long view upfront before jumping in, or you could end up with paint on your new floors or new kitchen cabinets taking up the entire garage while you wait for flooring to be installed.

Before Selling

Congratulations, your renovation is complete (or close to it)! You are ready to put this home on the market and get your money back plus some. Again, this is where an experienced real estate agent comes in. You need a plan to sell. When will you list? What will the list price be? What is your listing strategy? Do you want to sell quickly? Are you willing to wait a little longer for a better price? What is the market doing right now? These are all questions your real estate agent will answer.

In addition to planning to address all of the questions above, you need to be planning financially as well. You still need to pay the mortgage or loan (if you have one), taxes, and utilities while you have the home on the market. How long can you sustain those payments? At what point would you need to consider renting the home versus selling it to cover the costs? These seem like simple and logical questions that anyone would ask, but you would be surprised how many people don’t when they are caught up in the moment.

Our Lessons Learned

I would love to say that we followed all of the great advice here related to planning, but that wasn’t the case. Keep reading to learn what went well, and what we could have improved.

What Went Well

• We were able to find a great deal on a foreclosure that had been vacant for over a year.
• We knew the market well enough to know that we were getting a great deal.
• The home went under contract within a week.
• It was priced perfectly, and we were able to get the original list price.

Areas of Improvement

• There was no renovation plan; we grabbed our safety glasses and sledgehammers and started demolition.
• There was no list or spreadsheet. We had a general plan that included only minor cosmetic updates. There wasn’t a specific budget.
• We didn’t plan for over half of the repairs or updates we made. This was a major hit to our budget and timeline.
• Major repairs and updates that were unplanned: new kitchen and bath, replacing all windows, tearing down two sheds, and garage roof and gutter repair.
• Even when we decided to make the major repairs there was no planning; we just did it. We ended up having the entire kitchen and bath completed and then painted. This added a lot of time and extra touch up needed after the painting was complete.

Step 2: Time is Money

Time is so important when flipping a home. If you do a good job planning and follow the guidelines above, you will be much more efficient. There are so many reasons why flipping a home quickly is important.

First, the longer you own the home, the more it costs you. Not only are you going to be paying the mortgage or loan longer, but you are also going to be paying more interest, taxes, insurance, and utilities. This is important to plan and budget for from the beginning.

Second, the longer you own the home and are working on it, the longer you are taken away from making income in other ways. Your money and time are tied up in that home, and until you complete it you won’t be able to put that money anywhere else.

Finally, the real estate market can change in an instant. The longer you hold on to that home the more likely things are to change. Real estate is seasonal, too. Your best bet to sell your home quickly is to have it on the market from early spring to summer. If you miss that window, the number of buyers looking goes down in the winter months. That could mean less money for you.

How can you be more efficient when flipping a home?

The key is great planning and prioritization. You need to use the planning tips listed above, but you also need to prioritize your time. What does this mean? If you are planning on doing the work yourself, then you need to make flipping the home your full-time job. Period.

If you can’t make it your full-time job, then you need to hire some help. Your time has a monetary equivalent. Come up with a plan that allows you to be a weekend or weeknight warrior while someone else is working on the home during the day. Plan for this ahead of time when you are coming up with your timeline and budget.

Our Lessons Learned

No surprise here, but we didn’t do great on our timing. Somethings we did well, but there was room for improvement.

What Went Well

• We didn’t have a loan, so we weren’t paying interest every month.
• We hired contractors to install windows and floors, paint the whole house and fix the garage roof.
• Brandon is great with plumbing, electrical, drywall, and installing cabinetry.

Areas of Improvement

• It took us a year to complete everything.
• We didn’t prioritize the renovation until about 8 months into the project. We both worked full-time jobs and were parenting four boys. Somehow 8 months went by without much progress.
• We paid a full year of taxes and home insurance. Neither one was cheap.

 

Step 3: Be Realistic

All of the planning and prioritizing by the world’s leading experts will not help you if you aren’t realistic. You could create a very detailed plan and corresponding budget, but if you aren’t using realistic estimates, then you are screwed.

We are the perfect example of not being realistic with this home. When we were looking at the home and even right after we bought it we had only planned to paint the interior, fix the tile on the bathroom floor, and clean everything up well.

We weren’t there a week before we realized we had to get new windows. Then we started to clean the kitchen and bathroom and realized they were both beyond repair. More and more things like this kept popping up…. The kitchen appliances didn’t work, exterior paint was peeling, the sheds in the back had to come down, and so it went for a year.

When you start with unrealistic expectations you set yourself up for failure and disappointment. By the end of this project, we hated this home or at least working on it. I even started to resent it. The problem wasn’t the home, it was us. We were so excited that we had found a great deal that we jumped right in with unrealistic expectations and very little planning.

Lessons Learned

We learned so much throughout this year-long project. Never again will we “wing it” or set unrealistic expectations for ourselves. Moving forward we are going to take more time upfront to plan and contract out to save time and money in the long term.

Somehow, even with all of our missteps, we were able to do the two things we set out to do: make some money and leave the community better than it was. Part of the reason it took us so long, other than our poor planning, lack of time management and unrealistic expectations, was because we wanted to do it right.

To us flipping a home means doing a quality job. We wanted to renovate a home that we would be proud of. In the end, we did that. We took a house that had been vacant for over a year and turned it into a home. A home that a new family can enjoy. A home that we are proud of, and a home that the neighborhood welcomes.

Before and After Pictures