7 Things To Know Before You Start Investing in Flips
Once you’ve closed a few deals, you rapidly realize what works and what doesn’t. You find less demanding approaches to get to your ultimate objective and start Fine-tuning your plan of action.
The issue is that there are some hard truths that barely anybody discusses.
It’s made sense of as you get more involvement yet it doesn’t need to be like this!
I’ve included beneath a portion of the little known truths that you NEED to know as a rule about real estate investing.
1. Your market may not be the best market to invest in
It’s true that the easiest way to get started in real estate investing is to start in your “backyard”.
It’s convenient for you to drive by properties and you most likely know a lot about your particular market. If it isn’t an investor-friendly market (meaning you aren’t able to get deals at enough of a discount), then it might make sense to branch out.
This will take some research, no doubt about it.
It’s important to look at economic and real estate factors with any neighborhood you are considering investing in.
A few things to consider are:
- Population growth and job growth
- Unemployment rates
- Rent vs. own ratios
- Average market rent
- Crime rates
- School districts
- The number of homes for sale (inventory)
- Average days on market for new listings
2. You’re dealing with people who are going through a rough period in their lives
What does this mean for you?
You need to be prepared for a mixed bag of emotions.
Some of your potential sellers will have just lost a loved one. Others might be close to losing their family home and need to get out of the property quickly.
They’re coming to you as the solution to their problem. You have to remember to be understanding and sympathetic.
Regardless of whether you can make the deal work or not, spend a few extra minutes with the seller to listen to their story. You might not be able to help them but you might be able to offer guidance.
3. Some of these properties are DISGUSTING
We’re talking about the pet urine, the backed up septic tanks, the foul smelling junk that no retail buyer wants to deal with.
You (or your buyer) will most likely walk into some hoarder houses that make you want to turn around and walk away from the deal.
When a house reeks of cat urine… it’s a smell of huge profits.
Remember, it doesn’t have to be YOU that cleans the property out.
Look beyond the filth.
Once it’s cleaned up, would it make a good rental property or rehab? If so, run the numbers and go from there.
4. You will spend a LOT of time and money advertising
Your business needs leads in order to thrive.
Setting up direct mail campaigns, pay-per-click ads, social media ads, and other campaigns takes time and if you stop working on this, your business will not survive.
Luckily, once you get a good handle on what type of advertising works for your market, you can become more efficient at this.
You’ll want to set your campaigns so that you’re sending to the same people on a routine basis (once a month is routine but varies from investor to investor). This way, if they weren’t ready two months ago but are ready to sell now, your information is still in front of them.
Advertising takes both time and money. Everyone’s budget is different for advertising and you should be tracking where your money is being best utilized.
This leads right into #5.
5. You need money to get started!
We know you’ve heard people saying that you can get started in this industry with no money.
While technically you can do an assignment deal without bringing cash to the table, you have to consider what it took to get that deal.
Advertising is necessary to bring in leads and ultimately, to find deals.
Advertising costs money.
Sure, some assume they can spend $100 a month advertising and the deals will be flowing in, but that simply isn’t the case.
This is especially true in the beginning when you don’t know the best list to target and are casting a wide net.
6. You only close a small portion of leads
You’re seeing other investors talk about their success of closing another deal. Except, they don’t share how many other properties they visited before securing that one deal.
This is easily skewed when investors only talk to you about the “good”. Know an investor that closed 5 deals this month and made huge profits? They more than likely looked at hundreds of properties that didn’t turn into a deal.
Real estate investing isn’t about making every deal in front of you work. It’s about finding the right deal that works for you.
On average, a close rate of about 5% is normal.
The best part about this though is that you can still make good money by doing that small percentage of deals!
7. A big rehab like you see on TV isn’t where to start off
There’s multiple shows out there about flipping houses and some even with first time flippers.
Most have extensive repairs being done.
They might run into a few snags but all-in-all, it works out in the end.
Except, for most people, trying for a big rehab job as your first deal can very easily become overwhelming. You probably don’t have a team or contractor in place and you’ll end up having to do more work than you’d like to get the project done.
If your numbers are off or you didn’t plan for all the repairs the property truly needs, you can find yourself in a not so positive situation very quickly.
Walk before you run.
If rehabbing is your thing, start small and work your way up. Find a reliable general contractor that can manage the day-to-day operations but leave a buffer in your repair budget for anything unexpected.
Learn from other people’s successes… and their failures
Do your research.
Invest in a property that makes sense for you. It might not be your first lead or your 100th lead. Practice analyzing your numbers and have your financials ready for when that perfect deal comes along.
