At my company, Clark St Properties, we have a Rehab Division (Clark St Homes) and a Rentals Division (Clark St Properties). We use house flips as a key source of revenue to fund our operation and provide money for rental property acquisitions, which funds our long-term, tax-advantaged income.
Over the years, we’ve made a whole bunch of mistakes. We’ve also been fortunate to have several mentors who kept us from making more. And, we learned a ton about the real estate investing business.
Here are the top 7 things we learned about maximizing house flipping profits…
1. Start With Your Customer (The Buyer) In Mind
We never buy properties on roads with two yellow lines. Our customers are typically young families or owners with younger kids. Those kids want to ride their bikes, skateboards and hoverboards in the street. Mom and Dad want them to be safe.
Our customers prefer hardwood or engineered wood floors, instead of carpets. They like clean white kitchens, so we install nice shaker cabinets and sleek white quartz countertops. They like stainless steel appliances. They like clean white bathrooms too. Guess what we install…clean white shaker cabinets and white quartz countertops.
How do we know all this? We watch the same TV shows our customers watch. We ask realtors what their clients want. We even ask our buyers and prospective buyers what they like (and don’t like) about our homes.
2. Remember, You Will Never Live There
Over-rehabbing or under-rehabbing a house is a classic mistake. Most newbies will design the house as if it’s their home. It’s not. The only design perspective that matters is your buyer.
This is not the place you want to express your creativity. If you feel the need to be creative, get a hobby. Learn to paint. Plant flowers at your house. Don’t get creative with your flip home design.
For your flip business, keep it simple. Keep it neutral. Leave the cool stuff to Chip and Joanna.
3. Standardize Everything
Every project should use the same interior paint scheme. Use the same kitchen and bathroom fixtures. Use the same kitchen cabinet styles. Install the same style door hardware. Use the same flooring, whenever possible. Use the same appliances.
The more standards you put in place, the fewer guesses your contractors and vendors have to make. This results in fewer mistakes and you’re able to go faster. This leads to our next lesson…
4. Speed Is As Important As Maxing Out Your Selling Price
Time kills profits. For every month you own your flip, you’re spending more on financing, more on utilities, more on insurance. It also creates more risk. This is a vacant house. It’s tempting to the curious and to the local knuckleheads. That’s not a comment on any particular neighborhood. This is a universal risk.
5. Think That Offer Is a Little Low? Consider It Anyway
Speed also matters when it comes to getting offers. Think the offer you just got is a little low? Counter then cut the best deal you can. It’s rare you’ll receive 100% of your asking price. It’s better to get 95% of your perceived value than turn it down and accumulate days on market, adding more carrying costs, killing your potential profits. Take the deal. Say yes.
6. Clean and Safe Is Really Important
Paint is your friend, but there are corners you never cut. Always service the HVAC system. Always clean the chimney. Always confirm the electrical system is safe. If something is wrong, fix it. This is more than an integrity issue. This can be life or death.
The small additional profits you’ll potentially make, by cutting one of these corners, are not worth it, especially if someone gets hurt in one of your houses. The last thing you want is one of your sold properties on the morning news because something bad happened last night.
Better to do the right thing and sleep well every night.
7. This Is A Business…Run it Like One
Business systems are your friend. They enable you to scale your business. They also keep you from making mistakes.
Keep track of your project costs, line item by line item. It will help you figure out costs for your next project. Have a signed contract with your General Contractor. Have a signed Scope of Work with your contract. Use a written purchase order with all your vendors. Keep your receipts and take pictures of them. Take before and after photos for your marketing. Use QuickBooks (or another tool) to run your financial processes.
If everyone on the team knows what to do, it takes the guesswork out of the project.
This can be a really fun and lucrative business. It’s also hard to do it right. But when you do, you can build a thriving business and an excellent reputation for delivering high quality homes for your buyers. I’ve lost count at how many additional off-market deals we’ve gotten because people in our local marketplace know we do the right thing for our customers, partners and vendors.