It takes more than talent and smarts to make a healthy profit! Here’s why relationships are key in the fix-and-flip industry (and other industries, too)
Getting started in the fix-and-flip residential or commercial market can be challenging, especially when there is so much risk involved.
Tim Rose, executive vice president of DPC Companies, offers some valuable advice on how to find success without getting off track due to unexpected challenges.
That advice begins with knowing as much as possible about the cost, expenses, regulations, and everything else possible, which will only help position investors for success. This includes doing the proper amount of research on the property and the area where it’s located.
“We set the purchase price, we know what the remodel costs will be, we know where the market is, so when we go into it we pretty much know what that spread is going to be going out. Does it always happen? No. But generally, we are very close to our target exit price," Rose said, adding that the only reason it's possible to have confidence in those figures and estimates is due to years of experience when it comes to working with dependable and trustworthy partners.
Developing a trusted network and the experience necessary to know how to leverage that network isn’t something that happens overnight. Even so, creating and sustaining valuable relationships is another key part of the fix-and-flip market. For beginners, especially, working with a more experienced team can help you truly understand various nuances of the first few projects.
“Assembling a strong and trustworthy team including a contractor, attorney, and broker is essential in order to avoid the pitfalls many people experience when first starting out or even if they have been at it for a while,” said Rose. “We often lose sight that these relationships are essential. You can’t do it all yourself. You have to develop these relationships, especially if the person excels at their craft.”
There are definitely differences between the way that investors view a property and the way that homeowners view a property, but when it comes to renovations, one thing they both share is the need to have complete confidence in a contractor. Finding one that you can count on and trust is even more critical when the project hits a bump in the road—which happens to the vast majority of projects.
“It’s so common to find a homeowner who hires someone to complete the work, but the workers don’t show up, don’t finish the work, or the work is shoddy, and the timeline of your flip gets pushed back significantly,” Rose said. “People without experience don’t realize there are so many risks. The things they don’t know about in these projects end up costing substantially more than they ever imagined.”
By taking the time to find the right people, you will potentially avoid low-quality or unfinished work that could have otherwise been done if you do your research. Your network can help you to find these people, with whom they’ve worked with in the past.
How you treat your team and how your team works together can make or break your investment. Nurturing your team will allow you to do the best on your property and get the most out of your investment.
“I treat my contractor unlike most people do. I treat them like absolute gold because it is a relationship I want to continue to develop and I want that person to know they have my business going forward. They have a lot to lose if they take advantage of me on one or multiple projects. They can lose millions of dollars,” said Rose.
While Rose doesn’t recommend directly communicating this to your workers, instead, let them know quietly that if they treat you right you will treat them right, and you will create a long-term relationship.
Rose recommends again doing your research and taking the time to learn about the importance of relationships and management styles. “Leaders Eat Last” by Simon Sinek is a great resource on leadership, management and how to work with people effectively. “How to Win Friends and Influence People” by Dale Carnegie is another great option focusing on the importance of relationships.
These relationships are so important.
“If we're going to succeed, it’s because I have a huge team behind me. Not just me; it’s an incredibly talented group,” said Rose.