Flipping houses is a lucrative gig, many want to break into the industry but few are successful. Often, fix and flipping is romanticized by today’s popular television shows, but any seasoned real estate investor will tell you a fix and flip project is anything but easy at first. The common mistakes fix and flippers sometimes make are amplified when you don’t choose the right team for the job. This starts with choosing the right real estate brokerage.
It may sound odd to some, starting your fix and flip project by choosing a real estate agent. But think of your agent as the glue that holds the project together. A real estate agent holds one title, but fills numerous roles, from market analyst, to captain of your contractor team, and marketing director of your future listing. When you choose a good real estate agent, you’re getting much more than just a paper pusher who submits your offers. But don’t just take our word for it, read on to learn about the most common mistakes fix and flippers make when choosing a real estate agent or brokerage.
1. The Agent Isn’t an Expert in Investing or the Local Market
A large part of overcoming the risks involved in a fix and flip home is finding the right property, in the right location, that falls within your budget. Partnering with a real estate agent with little knowledge of investments, or a broader understanding of the fix and flip market is a recipe for disaster.
A real estate agent who specializes in fix and flip investments helps you choose a location that fits your budget, and helps achieve your aspirational resale value, ultimately ensuring the necessary profit margins. For example, in a hot real estate market do you really think you’re going to find a $120,000 house in a $300,000 neighborhood? A good agent helps you decide if a project in your desired location is actually realistic, based on your budget and bottom line.
The real estate market is in a constant state of flux. Even if a given area looks prime for investing right now, could inventory levels or a rise in mortgage rates change that in 6 months? It’s easy to find housing market statistics online, but it takes an expert real estate agent to interpret them specific to your project.
2. Spending too much on the transaction
Some might compare fixing and flipping to gambling. Essentially, you’re betting that an outdated home in need of a facelift is going to sell for a value high enough to cover all the repairs and renovations you put into it. Don’t forget to cross your fingers that the project actually stays on schedule too.
The 70% rule is a good cost basis to provide a buffer in your budget for covering repairs while still ensuring your project is a profitable one. Ultimately, this guideline says you shouldn’t spend more than 70% of your protected post repair value, minus the cost of repairs, when you buy a property. In action, the rule looks like this:
|After repair value (ARV):||$300,000|
|ARV – Repair Costs x 70% rule = Goal Purchase Price||($300,000 – $28,000) x .70 = $190,400|
Overall if you’re unable to negotiate the price of the property to $190,400 or less, then you need to keep looking for the right deal. Remember, not sticking to the budget is one of the most common mistakes fix and flippers make and it’s one of the fastest ways to derail your investment.
The Cost of Traditional Real Estate Agents
This is where picking the wrong real estate agent is detrimental to your schedule and budget. Is the home in decline enough that the seller accepts your offer? Is the area up and coming, or far from amenities? What are property taxes in the area? Traditional real estate agents are paid a commission, thus they’re motivated to show you the homes that offer the highest buyer’s agent commission, not the home’s that best fit your needs.
Trelora is a unique, modern real estate brokerage in that their salaried agents split their buyer’s agent commission 50/50 with the client, up to $6,000 in cash (untaxed) at closing. In the case of the example above, think about what an additional $6,000 does for the investor’s renovation budget and overall bottom line!
Agents who specialize in real estate investing are in tune with the current market and have the insight to turn a mediocre offer into an attractive one that gets a seller’s attention. From recommending the best financing options in the current market, to explaining contingencies you could consider waiving, and how to offer flexibility with a closing date, the right agent has a tremendous amount of wisdom to impart.
With that, a quality agent is able to negotiate on your behalf, ensuring you are getting the best possible deal given the current market. Plus, your real estate agent is your link to understanding the resale value in your local market so you can spend more time on what matters.
3. Partnering with the Wrong People
After your offer has been accepted and you’ve closed on the property, fix and flip investors work with a variety of vendors and contractors to complete a successful deal. At this point, your agent shifts from accountant and financial consultant, to interior design specialist and repairs consultant.
One of the most common mistakes fix and flippers make is not hiring quality, dependable contractors whose prices fit the budget. A seasoned real estate agent is well versed in which contractors do quality work, and which ones to avoid. Ask your agent for contractor recommendations, if they’re unable to give you any this may be a red flag. An expert agent should also be able to identify any red flags with potential contractors. For example, if the contractor wants the entire payment upfront before completing the job or provides inconsistent estimates it may be a good idea to do a little extra research or ask for past client testimonials.
4. Miscalculating Repairs
Miscalculating repairs is a common mistake new fix and flippers make. But veteran house flippers know that calculating repair cost correctly is just as important as paying the right purchase price for the house. With a real estate agent who’s unfamiliar with investing or fix and flip properties, it’s easy to mess this detail up, and ruin your ability to adhere to your bottom line.
By choosing an agent who’s an expert in investment properties, specifically fix and flips, you can utilize their expertise to determine which projects make the most sense for the resale value of the given property. Ultimately, fix and flippers focus on the repairs and updates that cost the least while adding the most value and appeal to the property. Your agent can identify nearby comparable properties and speak to current buyer preferences to ensure you make an educated decision.
Often, agents miss the mark by offering good design advice that’s bad for a fix and flip budget. For example, when you’re remodeling a kitchen, a brand name, high end faucet may be a tempting choice. But, to stick to your budget, there are numerous options that look high end, without the price tag that comes with a brand name. An expert investor agent knows these details, and may even have insider knowledge of the best bulk or discount suppliers.
At the end of the day, it’s easy to choose an agent because they’ve closed a ton of transactions. But unless your agent has worked with investors, and fix and flip transactions specifically, it’s easy to go over budget.
5. Overpricing the Home When Selling
You’ve poured your time and money into your fix and flip’s repairs. Now, your real estate agent transitions to marketing guru, ensuring your investment gets in front of the right buyers.
An essential part of selling a fix and flip property is ensuring you price it correctly for the area and condition of the market. With that, a good agent keeps an eye on the market to ensure you’re able to sell at the optimal time and get the best price for the property. The agent pulls nearby comparables to accurately access the property’s value including the updates the flipper added. Not to mention, an investor agent knows to factor in expenses from the repairs so you’re able to recoup your investment and also make a profit.
The Bottom Line: Mistakes Fix and Flippers When Picking a Real Estate Brokerage
Flipping a house sounds like an exciting adventure and quick money maker. But with the wrong team or an agent who’s inexperienced in investments or fix and flipping, it’s a recipe for disaster.
By adding an investor friendly, experienced real estate agent with a strong brokerage to support your needs, you can set yourself up for success. A good agent is a valuable asset that can save you time and money in the long run, not to mention prevent a lot of stress.
Trelora Real Estate has closed over 7,000 deals across the country. Our agents provide consistent, top-notch customer service and a team of resources to make your fix and flip experience a smooth one. Contact us today for a free buyer consultation, and learn how you can get up to $6,000 back in cash at closing.
Christina Parker co-founded Trelora’s North Carolina branch in 2020 and has successfully closed 330 deals as an agent. She was promoted to Market Director in 2021 as Trelora expanded to serve homeowners in Charlotte in addition to their hub in Raleigh.