How fix and flips can be the first step to a client’s profitable portfolio

When a real estate investor first starts their journey in the industry it can seem overwhelming. There is an entire new industry to learn from vocabulary to property types to legal requirements and everything in between. A broker can put themselves in an irreplaceable position if they are able to clear that initial clutter for their investor client and guide them towards early success.

One of the best ways to point your client in the right direction is to provide a sound business plan and create a path to success. The fix and flip strategy is tried and true for many different reasons, but it allows investors a chance to attain substantial capital early on in their investment career which leads to flexibility and options for years to come.

The fix and flip route can offer valuable experience, lead to industry connections, and provide the foundation any investor is looking for take next steps in their career.

Renovate and repeat

When a client is first starting out in the industry, it can be important to remind them that less is more. With heavy rehab, ground up construction or even long-term rental ownership that leads to property management, there are plenty of more nuanced avenues an investor can take when beginning their career.

There’s a lot that can get in the way when an investor tries to take on too complex of a project. With heavy rehab projects, renovation budgets can be high, timelines can be lengthy and tight and as a result deadlines can get missed. Now, while a new investor certainly is capable of completing a project with a larger scope, with the potential pitfalls even a completion doesn’t guarantee profit. As for ground up construction, those issues only get magnified and there is a lot more paperwork and documentation requirements. Building an entire property is much more of a task than even undertaking a substantial renovation project. There’s a lot to learn and understand in those cases whereas the smaller scale flips are closer to a sure thing when first starting out.

With long-term rentals, the passive income is appealing, but landlord responsibilities and property upkeep can become a pain for the investor. Rather than focusing on securing their next property with sufficient capital in hand, they are tied to one property trying to appease tenants and make sure the property stays livable and presentable for the long haul. The income generated from a rental can be stable, but it is incremental at first.

With a fix and flip strategy, the formula can be straightforward and repeatable. Find a property below market value in need of a facelift, secure the purchase and complete renovations, and sell for a profit all within a few months’ time to maximize returns.

There’s also the added bonus of finding trusted contractors that can work alongside the investor to ensure some of the more complicated or technical work gets completed properly. This is an easy industry relationship to maintain for a new investor, and if the contractor catches wind of the repeat business, they are more apt to make themselves available for the investor client and that becomes a win-win. Brokers can help their clients vet contractors, and while one project is in progress, the broker can try to find the next property that fits the investor’s budget and experience level.

Lean on lenders

Another reason why fix and flips can be the best entry point for newer investor clients is because lenders are more apt to help and have even created specific loan programs to cater to investors.

A major component of this is a fully funded renovation budget. Lenders typically finance the entire budget to ensure the borrower has enough funds to get them through the project. With this financial support, a broker’s client can retain a lot of their capital and save it for when they need it most.

Brokers can connect newer investor deals with their preferred private lenders in the industry and relay to their client that may only have to come up with a down payment in the 15-20% range. More experience leads to better terms and within the first few flips that down payment number can be cut in half. With fix and flips being the sole focus for a newer investor, by the end of their first year in the industry they could have completed multiple flips, accrued profit, and are now an ideal borrower for lenders across the industry.

Brokers that are able to identify these lenders, source the loan, and facilitate more opportunities for their clients to capitalize on, immediately become an asset and a partner to investors.

With more experience and capital, these same investors can now try their hand at more complex but more profitable renovation projects or ground-up builds because they are now a more appealing and trusted borrower for lenders. Additionally, long-term rental investing becomes more enticing for a client, and with the profit secured from early fix and flip success, a property manager may now be in the budget.

Lead investors and referrals will follow

What a broker does with one investor client can have positive ripple effects on their career for years to come. Referrals are massive in this industry as newer investors are only going to work with people they trust, or people that other investors in similar situations have vouched for.

If a broker is able to work with an investor from the start and steer them towards early success due to multiple completed flips, the amount of business that investor can generate for them through referrals can be extremely profitable.

While holding a newer investor’s hand and giving them advice every step of the way may seem like tedious work for a broker, it’s this kind of effort that can breed long-term success.

The next opportunity a broker has to speak with a frustrated or uncertain new investor, it can make all the difference to lead with guidance and remember this fix and flip formula. A clear business plan that can produce quick results will lead to confidence and success for the investor and repeat business for the broker.

This article was provided by RCN Capital