When I got started flipping homes I was very much the type of guy that would jump out of a plane and figure out how to make the parachute on the way down. Looking back I probably could have saved myself quite a bit of sleepless nights if I had just taken the time to put together the plan step by step from finding the deal to selling it so I could've known exactly what i needed to do when. Luckily for you I have done that so you don't have to have those nagging questions gnawing at the back of your mind.
Embarking on a house flipping journey can be as thrilling as it is demanding. It's a venture that requires diligence, a keen eye for potential, and a solid strategy. For those ready to dive into the world of real estate investment, a well-structured checklist is not just helpful, it can be essential for a peaceful mind. This checklist will guide you through the process of flipping a house, ensuring you cover all bases for a successful and profitable flip.
The House Flipping Checklist:
1. Identifying Lucrative Deals:
The first step in the process, above even lining up capital, in my view and according to most of the people I have interviewed on my podcast "The Top Investor Podcast" is to find a quality deal. So begin by developing a strategy for finding potential properties. Consider multiple avenues such as MLS listings, auctions, or direct mail campaigns. One of the best that I have seen, experienced or learned from other investors is utilizing driving for dollars. Software like DealMachine can help with this strategy as well as others.Â
Once you have found a property either through driving for dollars or some other method you will need to get in contact with the owner in some way so that you can negotiate a good deal. Which leads us to step 2.
Checklist:
____ Decide on a property sourcing strategy.
____ Figure out if you need skip tracing capabilities for your preferred strategy.
____ Get in contact with owner through skip tracing, mailers, agents, etc.
____ Evaluate potential properties thoroughly.
____ Network with lenders and secure pre-approval.
____ Connect with contractors for future projects.
2. Making Strategic Offers:
Prepare to make multiple offers. Persistence is key in real estate investment, it's a game of numbers. Most deals you look at won't be good, some will meet some base criteria and you will spend a little more time on and make an offer. Only a portion of those will end up in serious negotiations and an even smaller portion will get to an accepted offer. This is normal, In house flipping one of the worst things you can do is buy a bad deal. If you purchase it for too much it can be very challenging to get that project back on track. If you're just starting out and you have enough money for one down payment and you're trying to continuously roll up your profits, getting stuck having to turn your first property into a rental you can not refinance out of or selling it for a loss can be a big set back.
Most investors advise, and I agree, to utilize some backward math to figure out your max allowable offer based off the information you have at hand. This is what the 70% rule is all about in house flipping. Essentially your going to take what you believe to be the After Repair Value to be and you will multiply that by .7 (70% industry standard) you will then minus the estimated rehab budget. What you are left with in theory is the "max allowable offer". The 30% that we set aside includes your profit ratio, holding costs and selling costs. I typically would set the profit ratio as 10-15% of the 30% leaving 15-20% for the holding costs and selling costs.
In a post Covid world, contingencies have been kind of hit or miss. At the height of the real estate market just after Covid, contingencies were super hard to get accepted by sellers. here lately they are coming back and I thing they should be back to stay. I can't imagine we are going to get back to that crazy or a sellers market for a while. Typical contingencies for FLIPs not homeowners include, financing contingencies, "partners approval" (read Rich Dad, Poor Dad and hear about Roberts cat), clean title work. Inspections are not something that I ever got on my flips but I already expected to take my flips down to the studs and redo every inch or wiring, plumbing, roofing siding, everything. I often times would even fix foundations so I knew or at least expected there to be problems with everything in the house. An inspection report wouldn't tell me anything new so I wasn't going to pay for it. Now depending on the property something you might include is a survey. If property boundaries are in question this can be a great time saver.
Lastly, while I often say it is super important to get your first deal and do whatever you need to do get your first deal done you still have to go about this with some common sense. If the numbers do not work, do not move forward. It is best to pass on a potentially ok deal to avoid accidentally buying a bad deal. Buying a bad deal, like I said early, can set you back and in some cases might knock you out of the game entirely.Â
Software like Areii can analyze a deal or locate comps and help you estimate the ARV of a project.
Checklist:
____ Research Comps and Determine ARV
____ Estimate renovation cost.
____ Determine your Profit Ratio.
____ Set a firm maximum offer price.
____ Determine if any contingencies are needed.
____ Craft and submit your offer.
____ Engage in negotiations with readiness to walk away if necessary.
3. Securing Financing:
There are many different ways to secure the funding you need for a deal. Typically you only need to bring 20% of the purchase price "to the table". Hard money, private money or even a local bank will typically provide the other 80% of the purchase price and the renovation budget. I talk about this in depth in a book I wrote called "The Field Guide To Getting Started In Real Estate Investing". Go onto any Facebook group and you will be swarmed with hard money and private money lenders. knowing which ones are real, which are brokers, and which are scams is a little outside of the scope of this blog post. If you want to learn more about that go check out "Unlocking Your House Flipping Potential: How to Get a Loan for Flipping houses". If you need to find a loan, services like the ones right here on Areii can help you find quality lenders. Areii verifies and vets all of its lender partners and then analyzes their loan matrix to match you with the best lenders and loan products for your deal.
Checklist:
____ Choose a lender that aligns with your project needs.
____ Complete all necessary documentation for loan approval.
____ Await closing so you can begin the project.
4. Navigating the Purchase Settlement:
Coordinate with your lender and the seller to confirm the closing date.
Review the HUD-1 settlement statement to ensure all costs are accounted for.
During this time is also when I would be putting contractors in place, if not before. If you are not the contractor or you will not be overseeing the construction project make sure you use utilize a contractor in step 2 to help you determine the rehab cost. Once you have the list of contractors you will utilize, roughly plan out the different phases of the project and what that timeline might look like so you can get it on everyone's radars of when they will be expected to come in for their portion of the work. If you have a GC this will usually be part of their job but if you are the project manager then it falls to you.
Checklist:
____ Confirm the closing date.
____ Review the HUD-1 statement prior to settlement.
____ Prepare necessary documents and funds for closing.
____ Locate all necessary contractors.
____ Collect bids if you haven't done this already during step 2.
____ get tentative start dates scheduled for the entire project.
5. Post Closing:
Once you have acquired a property that is where the fun begins in my opinion. Before you can get to that fun you often need to get utilities switched to your name, you might need to clear debris or junk from the property or other tedious tasks before you can get to the serious demo. you might also get lucky and the property is already taken to studs. I purchased a flip once that a father and a son had started flipping and they got to basically hanging drywall and decided it was too much for them. Even though they had gotten it to that point I still had to do some demo. I think if your actually flipping a property there will always be some level of Demo. I always recommend cleaning any trash or debris out of the property so I can really view the property and determine what the project actually needs.
During this step you will also want to make sure you get any necessary permits filed and pulled with your local Public Works department or other governmental agency that oversees building permits. Another thing that is great to do at this stage that saves a ton of time and headache later on is to have any contractors you will be utilizing on the job to complete and sign a 1099 so you have it on file. It can be challenging to get contractors to do stuff like this once you have paid them.
Checklist:
____ Switch utilities on in your name.
____ Bring in a dumpster.
____ Remove trash and debris from property.
____ Finalize project plan.
____ Discuss plans with your contractor.
____ Adjust the project scope as needed.
____ Set the project plan schedule and get commitments from contractors based on project timeline.
____ Have all contractors complete and sign their 1099's. Collect these before the project starts or at least before you pay them!Â
____ File and pull project permits.
6. Executing the Renovation Plan:
Finally lets break things! but in a controlled manner, or bring in a wrecking ball, I don't care, just follow your project plan. I won't go into super detail here but most projects follow the same order, depending on the scope you may not need all of these steps but this is a pretty standard flow and depending on your city, or state building codes the inspections you have to do might vary. Just call the inspector that is on your permit paperwork and ask him exactly and what inspections are required. Also check with your local title company if you need to file a "notice of intent to sell". This is not required in all states but in certain ones this can delay the sale of a property that was purchased with the intention of flipping for 60 days or more. Learn more about a "Notice of Intent To Sell".
Checklist:
____ Clear the property.
____ Demo.
____ Roofing
____ Siding
____ Rough in electrical and plumbing.
____ Open Wall inspection
____ Hang Drywall
____ Drywall Inspection
____ Finish Drywall
____ Paint
____ Flooring
____ Cabinetry and Doors
____ Trim
____ Finish plumbing and electrical
____ Final Inspection
____ File Notice of Intent to sell 45 days before intended sell date.Â
7. Marketing the Property:
Honestly once you're to the point of painting the property I would already have realtors coming and taking a look and trying to presale the property before its even finished. If you are or work closely with a realtor I would definitely discuss this. This can be a great selling tactic as if a buyer does submit a deposit or something early on I have used tactics like offering to paint the house a certain wall color as a way to sweeten the deal for that buyer.
Once the property is done you will want to make sure the property is clean and then work with your realtor to do what need to be done to get the property listed. That may mean that you need to hire a property stager, professional photographer, maybe a drone photographer or something else to help you get the property on the market with its best foot forward for a quick closing.
Checklist:
____ Ensure the property is clean and presentable.
____ Sign a listing agreement and finalize marketing strategies.
8. Handling Offers and Closing the Sale:
By this point there isn't much left to do as long as the renovation was done correctly and to code. If you list your property and you aren't getting many showings then you might have some work to do but the thought process on things like dropping the asking price based on activity and interest level is pretty varied. Basically you will wait to see what interest there is on the property and you might need to adjust the asking price or make some consignments if no one seems interested. But eventually you will get a offer and if you've done a good job you will probably get a few. You will review these and you will decline some until you accept one.
Checklist:
____ Review and negotiate offers.
____ Finalize the sale and prepare for settlement.
9. Post-Sale Reflection and Growth:
After you complete each step in the process and then again after the project is completely done and the money is sitting in your account I always find it valuable to look back at what happened and identify any areas of improvement. You should always be refining your processes until you have built a machine that is just hums.
Checklist:
____ Celebrate your success and review the project.
____ Plan your next investment with enhanced strategies.
Flipping houses can be an incredible way to get started investing in real estate. You probably won't stay just flipping homes forever. Other strategies offer so many benefits but if you're getting started with a nest egg that would take a while to replace then flipping, when done correctly can help you multiply that nest egg and compound its buying potential. If you add in something like the BRRRR method this becomes powerful. A fix and flip is about 2/3's of the BRRRR method. But this is a blog post on Flips so I will save talking about the BRRRR method for another Blog post.
Grab Our House Flipping Process and Checklist PDF so you have a quick reference guide you can carry with you.