In the world of real estate, flipping homes can be the greatest way to generate phenomenal profits. Of course, that is if you focus on the right kind of deals. Below, Don Wenner, CEO of DLP Real estate Capital, shares how you can find the right types of deals and the steps you need to take in order to generate great profits.
Generating Income with the Right Deals
Find the Right Neighborhood to Invest in
First and foremost, you need to find the right neighborhood to invest in. You have to understand the type of market you’re in, know how much homes are selling for, understand the supply and demand, etc.
Find the Right House to Fix and Flip
In a hot market, it becomes very tempting to go after the high-end homes or the large renovation projects. Unless you are a world-class renovator, focus on the homes that only require $10k-$50k in renovations. The homes that typically end up generating the best profits are the “average-priced” homes. In most markets, those are the homes with an after repair value of $175k-$300k. “Over the years, we’ve been able to purchase a property, renovate it, and sell it at an average of 5 months. By doing it in about 5 months, we’ve been able to make great profits again and again. We’ve cycled our money more than twice in a year, versus working on larger renovations, where all of a sudden it’s 10 months to a year and a half from start to finish because you were waiting on some sort of approval or permit. Focus on average priced homes, and you’re going to consistently make great profit time and time again,” says Don.
To find good real estate deals, you also have to take the time out to go after the deals yourself. You can do this through getting referrals, looking through the MLS, and through different advertising methods. Building relationships with Realtors, wholesalers, banks, and credit unions, are other methods that will also help you find fix and flip deals.
Assess the Property and the Deal
Too many investors fall into the trap of doing “HGTV math”, which doesn’t include all the costs that went into the deal, like the closing costs and the costs of selling. Invest in getting a professional home inspection done on your home to get a handle on the things you’re going to have to address with the renovations. Calculate the potential after repair value of the property and take the time to analyze the profits prior to putting in your offer. At DLP Direct Lending Partners™, we have a flip analysis tool that we use on every deal that will tell you what your profit will be.
Assemble Your Dream Team
It’s critical to build a team with people who not only have top-level talent, but are a perfect fit for the role they will be working in. This includes your contractor, home inspector, and your Realtor. It’s also important to work with a good title company and attorney as well. You need to be working with a team who understands your vision and direction.
Renovate the Home
When you’re working through the renovation, you need to practice strong project management. Someone needs to be on site holding the team accountable every day. Even if you’re not an expert in construction, being there to hold team members accountable will make a great difference in getting the job done.
Another important factor is how you pay your contractor. You want to work with someone who you feel comfortable with and will get the work done at a reasonable cost. With that being said, do not hire the cheapest nor the most expensive contractor. Make sure you pay them at the right time as well (right after the work has been completed).
3 Ideas to Maximize your Return on Investment
- Focus on the kitchen
Use hard surface counters, modern cabinets, and stainless appliances. You don’t need to spend $10,000 on cabinets. You can get great cabinets on an average house anywhere from $2,000-$3,000. You also don’t need to purchase the expensive $3,000 stainless steel refrigerator, when you can purchase a good one for around $1,000. Don’t splurge on the granite $70 per square foot. You can get granite today for about $20 per square foot.
When painting the renovation property, use colors that will go with everything. “Agreeable gray”, for instance, is a color that practically goes with everything and is actually liked by the majority of people. You can paint some accent colors, but try to remain neutral with your color selections.
Budget for and make sure the exterior of the renovation property really stands out. Although you don’t have to spend a lot of money on the exterior, you still want the home to be able to really captivate buyers from the outside, especially walkway that leads to the entrance. Add some nice flowers, mulch, and have overall nice landscaping. Having beautiful landscaping will make it easier to capture great images when the time comes to sell the home.
- Focus on the kitchen
Sell the Home
Hire a top realtor to sell your home. Figure out who in your market is the best realtor and outsells all other agents in that market. An advantage to working with a realtor is that they have access to the MLS, which puts your home in front of so many motivated buyers. An agent will also handle the marketing, showings, negotiations, and the closing for you. Hiring a real estate agent will typically cost you 6%-7% of the home’s sale price.
Looking for a partner for your real estate investments? DLP Direct Lending Partners has the experience in flipping our own deals and funding many more. If you’re ready to explore working with a lending partner who has the experience and capital to help you fund your deals, we invite you to set-up a no-obligation discovery call.