The fixer upper personalities on the T.V. shows make fixing and flipping properties look so easy, until of course the drama ensues. However, we all know these shows aren’t reality and they don’t show every part of the process. At OTA Real Estate, we pride ourselves on teaching our students how to go into a project with their eyes wide open to the opportunities and potential issues. We have many tools such as the Deal Tracker that were created to help professionalize an investor’s process.
Let ‘s highlight a few of the areas where newbies to the fixer upper game commonly fall short and what can be done to prevent the pitfalls.
Budget: Although many real estate investors may think they have a good handle on their budget, we know it’s a place where things can go astray, especially when you’re dealing with a fixer upper. Ron Fields, Fix and Flip instructor, teaches students the importance of having a cushion in your budgets, known as escalation. Experts like Ron recommend 20% of your budget be held in a reserve.
Thinking you’re an expert when you’re NOT: One of the other negatives about the TV shows and YouTube is that everyone thinks renovation projects look easy. If it isn’t a project you’ve done several times in the past, it’s better left to a professional. Not only does this save time because of their efficiency but it also saves on costly mistakes.
Timeline: Newbies underestimate this part of the fix and flip process regularly. A great option is to use a construction schedule template. This will help ensure that each stage of the remodel is thought through. It helps eliminate clashes and overlaps, making sure sequencing is done correctly. Many people don’t realize that a proper timeline and sequencing is a huge part of proper budgeting.
Demoing first: I was reminded by my sister-in-law (we’ve done projects together) about a family that had a Demo party. They invited a high school baseball team to Demo the interior of a house. They took on the fixer upper with no clear plan and their financing fell through for the renovation days later. They were left with a completely demoed house and no means to do the renovations.
I share this story because demoing looks like fun, just swing a hammer and be done. But Demoing also needs a plan. Don’t destroy just to destroy. When renovating a bathroom or kitchen, some fixtures, such as cabinets and appliances, will still have value. At the very least they may still be worth a donation (check out ReStore Habitat for Humanity store).
Weekend fix and flipper: If you have the talent and skills to fix and flip a project yourself, great. However, understand there really is still a cost. Whether it’s actual holding cost or lost opportunity cost such as the property not being ready for prime selling season – there is a cost. These are considerations that should be in your budget.
What it comes down to is having the proper plan, budget and expectations when taking on a fixer upper. This is where great coaching comes in, like the kind we offer at OTA Real Estate.
Diana D. Hill – Diana@OTARealEstate.com