How to formulate a foolproof fix and flip plan

It's a strategy investors can perfect and perform multiple times in a year

How to formulate a foolproof fix and flip plan

The following article was provided by RCN Capital

One of the keys to being successful in the real estate investment space is finding the winning formula that is right for you. You don’t need to copy any other investor’s plan or try to excel at every strategy that the industry has to offer. Rather, zeroing in on a repeatable plan that works for you and is proven over time is really all you need.

Today, the strategy I will discuss is one that investors can perfect and perform multiple times in a year if they so choose, and that is a foolproof fix and flip plan. There are a few pivotal steps along the way when creating this foolproof plan, but once an investor has solutions in place, business relationships they can rely on, and a market they can flourish in, the plan can form into a vision for a successful real estate investment career.

Processes in place

When it comes to having a foolproof fix and flip plan, having solutions in place that are reliable and repeatable is a big help. Organization is key in this industry so if you can be on top of everything going on you’re already on a path to success. Having a daily planner or a notebook on hand to keep tabs on your work is a great place to start. There are also websites that mimic this organizational style, so it just depends on your personal preference and whether you are technologically savvy or not. There are important dates to remember, contact information that you’ll always need on every deal and benchmarks you need to hit to finish the project before your deadline.

Some lenders in the industry will also offer investors tools for success. At RCN Capital, we have a House Hacker: Rehab Budget Builder tool that helps investors get a sense for the scope of their work. There are similar products out there that can help put an investors mind at ease as well. With everything that they need to get completed regarding the renovation of their property on paper, the work gets a little bit easier. There is a plan to follow and a budget to adhere to. Tools such as these can be the difference between the completing a flip on time or being disorganized and not getting the job done in a timely manner in accordance with the loan an investor secures.

Another document that is a mainstay that investors rely on is something known as an executive summary. It is a short 1-2 page summary of the property in question, the work required to get done, and any other appealing aspects regarding the property itself or the market it is situated in. Outlining the opportunity and showing the initiative to get the opportunity on paper is a great way to market yourself to a broker or a lender.

Speaking of lenders, it is important to speak to more than one when you are zeroing in on the right fix and flip loan for your project. Organizing all the term sheets from different lenders to gauge their product offerings, their loan to value percentage and the interest rate you could receive from them is crucial. Run through the pros and cons of each term sheet and pick the one that is best for you. Also, make sure to keep every contact you speak with at these different lenders and keep them in your planner or contact book. You never know when you’ll need to reach out to them in the future when you need to switch up lenders or just ask questions to gain industry knowledge. I will mention that switching lenders is not ideal but sometimes it needs to happen. The preferred course of action is to establish a working relationship with a lender that you can rely on.

Reliable relationships

As mentioned, relationships in this business can be everything. For a savvy investor that completes multiple flips in a year, you can become a best friend of a certain lender of your choice by providing them with repeat business. What this will do is allow you to establish a presence with that lender and hopefully a dedicated loan officer. This will expedite your process immensely when you have a loan officer in your contacts that you can send all your potential deals to. Closing multiple deals with one lender leads to them getting excited when you call, potentially dropping other work to help you close a loan and provide extra guidance down the line if something comes up where they feel like they can help. You’ll also always be in the loop with updated industry guidelines and if there are investor specific tools that can aid in your business that lender will certainly share with a repeat investor that helps bring in business to the company.

Another part of the investor experience when completing fix and flip loans within the real estate investment space is opening an LLC. A lot of private lenders prefer this set up as opposed to a loan directly to an individual to cover their investors. Setting up an LLC provides a legal barrier between lender and investor and the investor’s personal assets are left out of the equation thanks to the LLC.

Back to the LLC itself, this is potentially a great opportunity to network and expand your business. Make sure the investor is the right fit with your goals and vision for the LLC but bringing in a business partner could help immensely. With an extra pair of eyes, another investor with experience and someone aligned with what you are trying to accomplish, your business could see a major increase with another person helping you run the show. With the processes and organization you already have in place, bringing in another person will hopefully be seamless. Be sure to choose wisely and maybe parlay their experience or work ethic into something that will benefit the company moving forward.

The last piece of the relationships puzzle in the real estate investment industry when it comes to a foolproof fix and flip plan is finding general contractors you can trust. This will be vital to your success. Having a contractor in your contacts can be vital when trying to finish a deal on time and within your budget. The benefits include a contractor being familiar with your business model and your working schedule to complete a flip. If the contractor can rely on your business, he will again try to do whatever he can to help get the job finished so you continue to use them in the future. There is also the potential to save money on materials if you agree to use them down the line and keep in touch. They’ll also be more likely to send their best employees out on the job and keep you happy with the progress of the work. This relationship can’t be understated. With the right contractor at your disposal your volume can increase, and everyone can make more money.

Mastering your market

Another essential aspect of making that fix and flip plan a success is having a market in mind that you can seek out houses that need repairs and turn them into profit after the renovations. Try to find a local market that you can establish a presence in and be on site to oversee repairs and keep tabs on progress. Staying local can also help with building a relationship with contractors as well as getting referrals from people locally that know you are in the industry. In this business, any lead you get is worth checking out and following up on.

Having a market you can master can make your business that much better. You’ll get a better grasp on what houses are going for, what the materials will cost to buy them locally or in bulk and the most important part, what you can list the property for on the market once the renovations are complete. Understanding your market will allow you to price the house at a reasonable number so your property won’t stay on the market for too long but you still have enough room to make a profit on the deal so you can find your next property immediately.

Other tips that will help you keep tabs on your selected market is being active in local real estate associations. You can be an asset to these groups as you gain experience but, in the meantime, it is a perfect place to network to see how other people are finding deals or business relationships. Getting on social media is always a plus as well. Facebook groups are always popping up in local real estate markets and you can use these social media connections to find new deals or learn more about how people that are currently successful in your market are getting the job done.

These three steps can be all the difference when trying to formulate that foolproof fix and flip plan. They are valuable business practices in their own right but combining them in an effort to close loans and perform fix and flips on properties can be a dominant process that garners a lot of success. If you have any additional questions regarding the process or any other keys to success that you want to learn about never hesitate to reach out to us at RCN Capital.