Flipping Real Estate - Maximizing Your Savings With the 70% Rule
As the saying goes, “A penny saved is a penny earned.” This holds true for the world of real estate investing.
Fix and flips are a risky investment, but they are capable of yielding strong returns while rehabbing otherwise undesirable properties. So, it is important that when tackling a flip, you know how to save money and stay within your budget.
So, if you are getting ready to try flipping real estate or are considering trying out this investment method, here are some key things you should know when trying to maximize your savings.
However, before we dive into how you can maximize your savings while flipping real estate, let us help you save money on the buy. After all, many experienced flippers will tell you that while flipping real estate, the purchase is the best place to save money.
So, if you'd like to learn how to save money early while flipping real estate, click the link below for a free strategy call with our team at LendCity and start flipping real estate like a pro.
Flipping Real Estate is All About The Numbers
Whenever you are getting ready to start flipping real estate, it is crucial that you have a firm and well calculated budget in place for every expense you might expect to pay throughout the process. This includes purchasing the property, acquiring any necessary permits for renovations, hiring contractors, paying for materials, any property expenses such as taxes, mortgage payments, insurance, and utilities and more.
Typically, flippers try to abide by a guideline known as the 70 per cent rule. This guideline suggests that in order to yield a meaningful profit on a residential flip, an investor should not spend more than 70 per cent of the estimated final value of the property during the process. After all, every unnecessary dollar spent on making the flip a success, is a dollar that you will not be getting back on the sale. This means that when shopping for properties, you want to ensure that you find low-value properties with high amounts of potential.
Five Key Areas You Can Save Money While Flipping Real Estate
When preparing to go out and pursue a potential flip, there are five key areas that you need to keep in mind if you are looking to save money and receive the maximum return on your investment. These five factors are:
Do Not Overspend On The Purchase
The earliest possible mistake you can make when flipping real estate is spending too much money on the initial purchase. The purchase is easily the most expensive step involved in almost every single flip, so you need to be careful.
When searching for properties you need to start by taking a look at the average purchase price for comparable properties in the area. After all, if the average three-bedroom house is currently selling for approximately $600,000 in a particular city, it will be hard to earn a meaningful profit on a flip that you bought for $450,000 after you factor in all of your eventual expenses.
This is why many flippers try to pursue off-market deals so that they do not need to worry about higher prices, potential competing bids or purchase prices that are set to factor in realtor commissions on the part of the seller.
Discover How To Flip A House With This Step By Step Guide
Consider the Necessary Updates And Repairs
Another important step in order to save money while flipping real estate is to take the time to consider and estimate prices for every necessary update and repair you may need to make. This allows you to build an informed budget that will tell you whether you have room to make a profit on the property and how much you can expect to earn. After all, no matter how much time you put into the flip, you do not get paid until everything is over, so you need to make sure it is worth your time to begin with.
How much will the property need in order to replace old, worn-down flooring? How much can you expect to spend fixing any water damage you see in the kitchen? How much might it cost if the damage is even worse behind the walls? These questions and more are ones you need to ask yourself because getting these answers wrong can sometimes result in thousands of dollars in additional, unplanned expenses.
Shop Around For Building Materials
When you are buying supplies while flipping real estate, take the time to shop around for the best deals you can find. While you should never compromise on quality, some retailers may have special deals on key supplies and materials you will need in order to get the job done.
Find Contractors Who Offer the Best Value
When you are looking for a contractor, do not let yourself get confused or misled by looking for someone who is offering you the lowest price. Low prices do not always indicate a great deal when it comes to labour. Instead, what you want to look for is value. Compare the rates contractors are offering with samples of their work that they are able to demonstrate. Then, hire the contractor who delivers the best product at the most reasonable price – even if there are cheaper alternatives.
Make Sure The Property Will Be Able to Sell
Finally, it is important to make sure that whenever you are flipping real estate, the market is primed for you to be able to sell the property while turning a profit. If the local real estate market is slowing down and property values are on the decline, it is unlikely you will make the profit you were looking for. Meanwhile, if things are going strong and local prices are on the rise, it is a safe bet you will be able to see a strong return on your property.
Remember – Saving Money is Not About Cutting Corners
One of the most important things to remember when trying to save money in real estate is not to cut any corners. While it may seem easy to slap some of the cheapest supplies together or hire the most affordable contractor, these oversights can result in a notably inferior end result that will not be as valuable or worse yet, may not sell at all.
So it is important that you only settle for the best at each and every turn, and that includes financing the project. When you are getting a mortgage for a fix and flip, you want to be confident that you are getting a product with the fewest penalties for breaking your term early when the work is complete.
That is why at LendCity, we work with a variety of lenders so that you can find the best mortgage available, no matter what your project is. To apply today and get started, you can visit us at LendCity.ca or call our office at 519-960-0370. Alterntively, you can click the link below to book a free strategy call.