Don’t Flop on Your First Flip: 5 Tips to Investing in a Rehab Home

Is your inner Chip and Joanna Gaines calling? Purchasing an older home that needs renovations and a little TLC can be exciting, especially if you are an HGTV addict and fan of shows such as Fixer Upper.

Even though these pros make remodeling homes look easy, purchasing your first fix and flip can become a dreaded mistake if you’re not prepared.

Use these ultimate rehab tips to help you shop smart when looking for your perfect “fixer-upper.”

5 Things to Know Before Purchasing Your First Fix & Flip

1. Know where to find properties

If you’re a first-time flipper, finding a quality property to invest in can be difficult. Begin searching investment properties through a real estate wholesaler.

Wholesalers complete all of the searching, negotiating and contracting of real estate properties. They then market them specifically to property investors or fix and flippers, such as yourself, looking to capitalize on the investment.

Be first to receive newly listed wholesale properties by signing up for the Catalyst Wholesale E-Newsletter.

2. Know Your Budget

Before investing in your first rehab home, you should explore all of your financial options and know what you can afford.

Many property investors use hard money loans when purchasing rehab homes. Why? Because hard money loans are designed for real estate investments. Hard money loans are based on factors beyond credit score, such as profit potential; close faster than a typical loan; and allow investors to leverage funds for multiple projects at once.

One of the most difficult and crucial aspects of renovating a home is estimating rehab costs. If you estimate a fix and flip renovation project too low, you will lose out on your profit. If you estimate too high, another investor will scoop up the deal. Learn more about applying for a hard money loan for your next flip.

3. Don't Take on More Than You Can Handle

Have you ever tried carrying a 60-lb boulder up a mountain? It’s a never-ending battle. Rehab projects that spiral out of control can have that impact on the renovator. When planning your rehab project, be efficient by working smarter -- not harder.

Talk with experienced project managers and contractors who have previously worked on fix and flips or with property investors. They will understand your investment mindset and exit strategy. A good contractor can help ensure your project meets deadlines and remains profitable.

Be cautious of adding upgrades to the project as you go along. Map out a renovation plan and stick to it.

4. Be Prepared Before Grabbing a Hammer

Jumping in with both feet may not be the best approach when renovating an investment property. Take time to walk the investment property, and know what to look for. If this is your first time, consider inviting a property inspector who can help you determine the extent of the project.

Make sure to plan for some contingency funds. In nearly all projects, some “issue” will pop up, whether big or small. This can add up and put you in a pinch if you’re not prepared. Create a financial cushion around your project by having funds for unexpected costs.

5. Don’t Overbuild

Over-improving your renovation can substantially impact your profit. Find comparable homes in the neighborhood and gain insight on what materials to use in the rehab. Installing granite countertops, hardwood floors and a full tile shower may be an overbuild for the neighborhood where your investment property is located.

You want to keep your home at the standards, or slightly above, the other homes in the neighborhood.

Investing in a fixer-upper can be challenging, rewarding and profitable all at the same time. Finishing your rehab in a 30-minute time frame like HGTV does is unrealistic, but with patience and time, you can rehab a home into a masterpiece that brings you a nice payday.make a living flipping houses