Flips are more difficult to find then rentals and more risky but have greater upside potential. If done right that is. Here are 5 musts before taking on a flip project.
- 70% max LTV – Make sure you have plenty of room for surprises, overages, etc. The higher the discount, the lower the risk and higher the profit. Use sales comps from the last 3-6 months and within .5 to 1 mile.
- Cash flow positive – The property must cash flow to provide multiple exit strategies. Flips require more expertise, have more risk and multiple exit strategies are a must.
- Do things in 3s – During due diligence, get 3 rehab bids, talk to 3 property managers, 3 listing agents, 3 opinions from fellow flippers, etc. One is not enough, to be thorough these items must be done in 3s.
- Align your goals – This is very important. You are building a team and systems so you can do the best job and duplicate deals over and over. Conflicting goals can destroy a deal, make sure your contractors, agent, teams, etc all have aligned goals.
- Reserves & Backup Plan – Do not ignore the inevitable. There are surprises, delays, over budget items, extended market times, etc related to rehab flips. Always have reserves and backup plans that you can execute when appropriate.