Real estate can be a great investment or even a side business if you know how to run it right. Many people miss the great opportunities first-time home flippers can take advantage of including tax write-offs for running a business.
If you want to make a living out of flipping homes, use these 5 business tips to help you start your journey off strong.
- Location is the Key Factor
You could find the most beautiful home or a home that you can make incredibly beautiful, but if it’s in a bad location, it won’t sell. If it does sell, it will be for much less money than what you anticipated, leaving you with lower profits.
So how do you ensure you get what you need from your investments?
Pay close attention to the location. The home itself plays a key role, but you don’t just invest in the home – you invest in the area around it. Rather than thinking like a homebuyer, think like a home seller.
You will only hold onto the home for a few months (usually six months max), so you want to invest in an area where there is high demand. Look at factors like the crime rate, school ratings, overall values in the area, and convenience.
- Make Sure You Have A Business Plan
Investing in real estate is a business – a real business. Just like you wouldn’t open a brick-and-mortar store without a written out plan, the same is true of investing in real estate. You need a plan.
Your business plan should include some or all of the following:
- Mission – Why are you investing in real estate? What’s your goal both personally and financially?
- Plan – What steps will you take today, in a year, and five years from now to operate and grow your real estate business?
- Competition – Who’s your competition? What will you do to beat them?
- Demand – What is the market demand like in the areas you plan to invest?
These factors and many others should be factored into a fully fledged business plan that can serve as a framework for maximizing profit with each house that you invest in.
- Build a Large Network
Investing in real estate takes a village and in that village, you want people you know and can trust. Tell everyone and anyone that you’re investing in real estate. Even if your friends and family aren’t in real estate, they may know people involved in it.
In your network, you’ll need a variety of professionals including:
- Real estate professionals
- Appraisers
- Inspectors
- Contractors
- Lenders/bankers
The larger your network the faster and easier you can buy properties, fix them up, and flip them for a profit.
- Know your Market
Don’t blindly invest in an area. Get to know the market inside and out. This includes home values, whether the market is a buyer’s or seller’s market right now, what buyers look for, and the value of comparable properties (comps).
Talk to locals, get to know what the area is like, what it’s been through, and where it’s headed. Include professionals in your research too as they can give you real numbers and facts to help you make your investment decisions.
- Set a Budget
Don’t invest in homes before you know your budget and in that budget include a buffer. When you look at homes, you have to figure more than the purchase price. Even if you’re paying cash, you’ll have the cost to fix the home up and sell it.
In your renovation costs, include a buffer. Even if you work with the ‘best contractor’ in the area, things happen. You don’t know what they might find once they start the work. If they need to do more work or there’s an emergency, the liability falls on your shoulders. Figure at least a 15% contingency to account for any issues.
Don’t forget about closing costs too. When you sell the home, you’ll pay the transfer taxes, recording costs, and real estate agent fees if you don’t sell-by-owner. Selling could cost you a few thousand dollars so you need to factor closing costs in all your calculations.
Final Thoughts
A real estate investment business is a great way to diversify your income. Whether you do the work yourself or you manage a team of professionals who do the work, you are running a legitimate business.
Operate your business as such and take the write-offs you are allowed to take on your taxes to reduce the cost of running a business. Keep track of your expenses, work with professionals, and always revisit your budget.
Your first couple of fix and flip properties may feel like a lot of work, but as you get experience, learn from your mistakes, and build a larger business, you’ll get the hang of investing in real estate and see how lucrative it can be as a full-time or part-time business.
