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Fixing up properties and selling them on for a profit, has been a solid trend for several decades now and the amount of TV shows dedicated to the subject, tells you how popular it is. I’ve watched hours of these shows and it’s not often you see someone lose their shirt on a deal. In fact, even when there’s a total novice involved, they seem to walk away with a profit.So is it just a case of buy, renovate and sell, or is there some “secret sauce” or insider knowledge that they never reveal on these shows? The sheer number of people who are making money this way suggests that the cash is there for the taking, but is that really true? More importantly, how can WE get in on the action?
The very first thing to consider, is what can you realistically afford to spend on both buying and then renovating a property. It’s probably wise advice to say that if you have to get horribly into debt to get the project done, you should think about doing something else. I know that fortune favors the brave and that plenty of really rich people made billions by taking risks, but nothing beats realism in the long term.
One thing that’s certain with any kind of renovation project is that things never quite pan out how you want them to. The second thing is that these types of projects have a nasty habit of going over budget, sometimes quite quickly! A faulty roof or unsound foundation and you’re suddenly staring down the barrel of a budget black hole.
Being properly funded for the entire project plus contingency, is vital to getting the job finished and the property successfully flipped. This could mean spending time making adjustments to your current lifestyle or having to learn how to budget your spending to save up what you need. Being a cash buyer is going to give you a big advantage, so consider it if it’s possible.
The next part of having a successful project, is also a matter of economics: You need to buy as low as possible and sell as high as possible. This sounds like common sense, but in the heat of the moment, it’s very easy to make mistakes. Ideally, you should buy below market value and property auctions are a great way to pick up a bargain. But this is also the environment that mistakes can be made, as many people will get caught up “in the moment” and pay way more for something than they should.
Knowing which properties you’re targeting is essential and doing as much research as possible on them could be the difference between a smooth run and chaos. If you have rough figures for renovation and current versus completed values, you’ll be able to better know if a property is worth the time and money. Walking away from an auction with nothing, is far better than being saddled with a money pit, because you got trigger happy on the day. Be cool and be prepared to wait for the right opportunity to come along.
A useful skill is to be able to determine what you can realistically do yourself and what jobs will need a professional. We all like to think we can do anything, but apart from the jobs that legally require qualified experts, keep your ego in check and get help when it’s needed. Hiring trades directly, rather than through a building contractor, will generally save you money. If you must help, offer to work as a laborer for a trade and help them to get the job done in a timely fashion.
Renovating a property can be a highly rewarding experience, but it needs to be approached in a methodical and realistic manner. Take your time when buying, because this is often where the money is made. Research properties and the local market to decide on the best type of project and create a finish that is expected from those you hope to sell to.
Manage your own expectations and don’t expect to get rich overnight. This rarely, if ever, happens. Like all types of investing, a longer term strategy tends to pay off better than a quick hit. Above all, have fun doing it and embrace the challenge!
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