Have you ever started a fix and flip project, excited and hopeful, only to face unexpected delays and spiraling costs that diminished your return?
You’re not alone—12% of flips are sold at break-even prices, and 28% have a gross profit that’s significantly lower than 20% of the purchase price. Not good.
Many first-time investors experience these challenges. At Park Place Finance, we’ve guided countless clients through these hurdles with our efficient fix and flip loan solution.
Let’s dive into how you can avoid common pitfalls in your next fix and flip project.Get started on your fix and flip loan.
Before embarking on your fix and flip project, it’s essential to consider various factors that could impact your timeline and overall project success:
- Property size and rehab scope
- Project planning
- DIY vs. contractor
- Cost considerations
Susan and John are just like any excited couple venturing into their first fix and flip project. Having purchased a charming 1950s bungalow in Austin, Texas, for $250,000 they’ve set aside $50,000 for renovations.
Throughout this article, we’ll use our example couple Susan and John to help illustrate crucial insights on fix and flip projects and how to avoid unexpected hiccups and cost overruns.
The potential for a successful fix and flip project lies in detailed planning, far beyond the initial property selection and renovation cost estimation.
Before the couple in our example began, they meticulously examined the 1200 sq. ft. property. An initial walk-through should consist of outlining the required rehab, scheduling tasks, and factoring in potential unexpected expenses.
By considering details such as contractor availability and potential delays (like late material delivery), our fix and flip couple constructed a timeline that allowed room for adjustments, maintaining their project’s efficiency.
- Assessment of the property’s condition and required repairs
- Research on local real estate market trends and target buyer preferences
- Scheduling contractors for different tasks, such as plumbing, electrical work, painting, and landscaping
- Obtaining a home inspection to identify any hidden issues
- Budgeting for materials, labor, permits, utilities, property taxes, homeowner’s insurance, and miscellaneous expenses
- Determining a realistic timeline for the project from start to completion
- Developing a marketing strategy and sales plan for the renovated property
Arranging your financing prior to starting the project is a key step in preventing funding-related delays. Unless you have the cash in hand, you’ll need to secure a loan.
Most conventional lenders view fix and flip projects as risky. They also need to adhere to specific guidelines in order to finance a property which doesn’t always work for investors.
That’s why private, also known as “hard money” lenders, are usually the best option.
The best loan solution for a fix and flip project is one that was specifically created with investors in mind—the fix and flip loan.
These loans offer short-term financing and cover the cost of the purchase and renovation of a property. Flexible qualifications make them the best solution for investors at any experience level.
Our example couple, Susan and John, wisely sought a fix and flip loan from a reliable hard money lender, well-versed in similar projects and who was able to lend nationwide.
The choice between tackling renovations yourself or hiring a professional contractor is more important than you’d think.
Our example flipper John decided to embark on the DIY route and it seemed like a cost-effective choice.
However, he soon faced a steep learning curve, and his project timeline doubled, pushing their market entry date further out.
John estimated a new roof would cost $5,000-$12,000, for professional installation, so he opted to do it himself.
In retrospect, even though hiring a contractor might have cost an additional $10,000, it would have accelerated their timeline and potentially allowed them to flip the property faster, yielding returns sooner.
- Cost savings on labor expenses
- Greater control over the project timeline and decision-making process
- Opportunity to learn new skills and increase personal knowledge in home improvement
- Flexibility to make design changes and adjustments during the project
- Satisfaction and pride in completing the project personally
- Access to professional expertise and specialized skills
- Efficient and timely completion of tasks due to contractors’ experience
- Reduced personal workload and stress associated with managing all aspects of the project
- Increased chances of achieving higher-quality results
- Compliance with building codes and regulations, ensuring safety, and avoiding costly mistakes
Hidden costs are a common pitfall for first-time investors. These can include labor, permits, and unforeseen expenses, which can quickly accumulate and throw off your budget.
Susan and John, understanding this, allocated a contingency fund of $5,000 (10% of their renovation budget) to cover any unexpected costs. This planning paid off when they encountered a surprise $3,000 plumbing issue, and effectively kept their project on track.
- Unexpected plumbing issues, such as corroded pipes or leaks
- Electrical problems like outdated wiring or the need for additional circuits
- Foundation issues, such as cracks, settling, or structural instability
- Mold or water damage was discovered during the renovation process
- Pest infestations that require professional intervention
- Environmental hazards like asbestos or lead-based paint removal
- Structural modifications to meet building code requirements
- Unforeseen issues with HVAC systems or other major mechanical systems
The process of securing necessary permits can be a complex and time-consuming task, which could result in unexpected project delays.
This was a hurdle Susan and John hadn’t foreseen. When their permit process caused a two-week delay, they then understood the importance of factoring extra time into their project planning timeline.
- Building permits for structural changes or additions (2-8 weeks)
- Electrical permits for rewiring or major electrical work (1-2 weeks)
- Plumbing permits for significant plumbing modifications (1-2 weeks)
- Mechanical permits for HVAC system installations or upgrades (1-2 weeks)
- Demolition permits for removing walls or structures (1-4 weeks)
- Landscaping permits for significant outdoor modifications (1-4 weeks)
- Historical or conservation permits for protected properties (varies significantly)
- Zoning or land use permits for changing property’s purpose (varies significantly)
Please note that the timeframes for permits can vary based on location and specific project requirements, and it’s essential to consult with local authorities for accurate information.
Park Place Finance’s fix and flip loans are tailor-made for investors.
Offering flexibility, quick closing, and a loan structure that covers 100% of renovation costs, this loan can ensure your project stays on track and profitable.
By choosing a fix and flip loan from Park Place Finance, you can ensure that your project remains on track and profitable.
Are you ready to begin your fix and flip project?