Fix & Flip Systems = Success!

Posted By: Derek Marlin ICOR Blog & News ,

With Fix & Flip gross profits at all time high levels, we often receive the question - “Is now still a good time to Flip”? In our view, current market conditions do lend themselves to running profitable property redevelopment projects as we call these projects. Our company volume is down almost 35% compared to 2020 but net profitability is up almost 90%. This can be attributed to market appreciation in homes when we list them for sale but more important is our focus on strict deal analysis up front so that we’re not overpaying for properties. If you are realistic in the ARV (After Repair Value) of a property and work within your rehab budget, then it sets you up for maximum profitability. It’s also important to work off of firm data as much as possible and not get caught up in projected appreciation of projects which are a 2-4 month turnaround. This adherence to our company investment metrics of 1) Dollars Per Day  2) Net Profit  3) ROI % make it easier to analyze properties and not get emotionally caught up in a bidding war or keeping contracting crews busy.


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September 7th, 8th, & 9th | 6:00 - 8:30 pm

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9cont.) The key to taking these metrics and running a profitable project is through our “Big 4 of Project Management” which are outlined below:

 

  • REHAB BUDGET: The ELEVATION Rehab budget estimator is a two-sheet document which helps investors take a systematic approach to budgeting. Your #1 step in determining a proper rehab budget is to focus on the six major systems of a property as they can total 60%+ of your budget.
    • Structural Components
    • Sewer Line
    • Electrical Panel
    • Roof & Windows
    • HVAC: Furnace/Boiler/AC
    • Asbestos
  • #2) STATEMENT OF WORK (SOW): The second key document is the statement of work (SOW) which is a detailed description of what type of work is going into the project. ELEVATION breaks the SOW into two different formats based on the property. More cosmetic jobs can be summarized on a single sheet of paper as many rehab elements carry across multiple rooms/areas of a property. The whole house SOW is a spreadsheet which has a separate tab for every room in a home as many design and rehab elements differ between rooms.
  • #3) FIXTURES & FINISHES (F&F): The third component is the ELEVATION Fixture & Finish document which takes the guesswork out of selecting what style and materials are most desirable to buyers. We update these packages annually with a professional interior designer to stay on trend. It’s important to take most of an investor's personal taste out of the decision tree and always think through the lens of the widest buying audience. Based on the style of a property and resales price point, one of six packages will be selected. As an investor, time is money and hours spent wandering around Home Depot, Floor & Decor, and various home improvement stores is not a productive use of time. We added a sixth package based on homes in the $800k-$1M price range which require a higher level of quality in what we put into a property. Our finish packages are:
    • High End ($800K+ price point)
    • Contemporary (Black & Chrome hardware packages)
    • Farmhouse (HGTV-Fixer Upper)
    • Mid Century Modern (1950’s-1960’s style)
    • Rental Property
  • #4) TIMELINE: The final document is the timeline which tracks every step of running a successful and profitable rehab project. Currently, the ELEVATION Way consists of four main phases and covers over 100 individual steps.
  1. Project Planning
  2. Rehab Process
  3. Materials
  4. Listing for Sale

This process is critical to follow regardless of the size of a project. Our philosophy is that a day of planning and organization saves 3 days of possible delays. We’ve moved this aspect of project management to www.Monday.com which is a fantastic software platform that enables clients to run multiple projects and teams from one central area. Each project is called a “board” and can be shared with business partners, project managers, contractors and subs.

 

KEY TAKEAWAYS

              The property redevelopment business- or Fix & Flip, as most call it- can be lucrative, but it’s paramount to stay to your investment guidelines and not overpay for properties. It’s also smart to be realistic on the listing price once you are finished with a project. Even if a project goes over budget, the market is efficient so properties which are overpriced will sit and typically result in price reductions before they are put under contract. We’re presenting at ICOR’s main events in September so be sure to attend on the 7th, 8th, and 9th across the Front Range. We’re always here to add value to investors so don’t hesitate to reach out!