Categories
Shortterm Rentals

How to Diversify Your Short-Term Rental Portfolio

Investing in short-term rentals (STRs) requires you to apply one of the main two schools of thought that exist when it comes to real estate investing in general:

  • Diversifying: Balancing risk and reward by spreading out investments across varied property types, locations, classes, and strategies.
  • Specializing: Focusing on investing in the same property type—repeating what you’ve found successful without spreading your resources too thin.

Both strategies are valid approaches to grow your portfolio. One focuses on horizontal expansion, while the other does it vertically. While investors tend to stick with one over the other, there is a way to have a hybrid—focusing on STR investments across different locations but keeping just to one specific asset class. Doing this can help you mitigate risks while focusing on one property type of your choice.

Before you set out to diversify your short-term rental portfolio, let’s look at the benefits of this approach.

Why You Need to Diversify Your STR Portfolio

There are two primary reasons why you need to diversify your STR portfolio: 

  1. To remain resilient in the market, especially with the unique rhythm of vacation rentals. Compared to long-term rentals that give consistent income year on year, the income generation of STRs is highly dependent on the season, the location, and their respective peak times.

A lake house will attract more guests in the summer, a log cabin near a ski resort will be profitable in the winter, and homes near Disneyland will be in high demand during school vacations.

  1. To meet the rising post-pandemic demand, where travelers are now seeking alternative accommodations to minimize human interaction and maximize flexibility.

In fact, the bookings’ reservation volume this year is now 400% higher than 2020 and 50% higher than 2019. With this increase in demand comes higher prices as well, where STRs are charging 20% more than they did last year.

As an STR investor, you want to protect your portfolio and capitalize on the growing demand—expanding your coverage to include rentals in other locations and of different class levels.

How to Diversify Your STR Portfolio

Now that we’ve discussed the benefits, let’s look at two ways you can diversify your portfolio. One way to diversify is opting to have STRs in multiple locations, which can bring more stability to your investments.

Diversifying By Geographical Location

While the STR demand in one city might be booming, another might be slowing down. By having investments in different locations, you can take advantage of a market’s natural ups and downs for a more stable and consistent revenue flow.

For example, take a look at how Big Bear Lake, South Lake Tahoe, Gulf Shores, and Sedona performed vastly differently over a two year period (thanks to seasonal demand, among other factors):

Source: AirDNA

If you have STRs in only one market, the success of your investments will completely be at the mercy of that market’s performance. Instead, consider spreading your investments across different geographical locations, so you’re not vulnerable to the same risks simultaneously.

In choosing where to spread your investments, AirDNA shares a list of different markets that covers the key factors of a successful STR investment:

  • Growing rental demand: Where the annual occupancy of rentals and listing growth rates are increasing. A good number means the STR and travel demand in the market is healthy.
  • Financial viability: Where you compare the home value to the average income of other STRs in the area (e.g., Airbnbs) to evaluate the rent-to-price ratio. The rule of thumb is to make sure that the monthly rent you can charge is at least 1% of the purchase price.
  • Increasing revenue growth: Where the income earned from STRs increases over time. You can calculate this by looking at the year-on-year change of revenue per available room (RevPAR) for the rentals that were booked in both time periods.

Here are some locations to consider, based on AirDNA’s top performers for these metrics:

Source: AirDNA

Diversifying By Asset Class

Generally, real estate asset classes are divided into four letter grades: A, B, C, and D. While these scores refer to property condition and neighborhood livability, it also describes the type of guests or tenants you’ll attract:

  • Class A properties: These are the most expensive and best-maintained homes in the market. They attract guests and tenants who can afford to live in luxury and enjoy the special features available in the property.
  • Class B properties: These are slightly smaller and more affordable than class A properties, but are still well-maintained. They attract those who want a pleasant place to stay without spending too much money.
  • Class C properties: These are reasonably maintained and decent homes. When times are tough, guests and tenants who used to stay in class A or B options might opt for class C instead.
  • Class D properties: These are older homes in areas that guests find less favorable to stay in. Aside from being in a more dangerous neighborhood, class D homes are likely far from shopping areas or grocery stores. Typically, they don’t make profitable STRs.

There are specific asset types to consider for Airbnbs as well. Properties are not divided into the same letter grades, but are categorized according to the type of guests they’ll attract:

  • Unique Stays: These are unusual but beautiful places to stay for a vacation. Whether it’s a yurt in the woods or a houseboat in a scenic lake, unique stays will attract guests looking to splurge on an adventure.
  • Entire Place: These are typically whole houses where guests have complete privacy to enjoy amenities and other activities exclusively.

Since these can be the likes of single-family homes, you can keep the letter grades in mind to diversify your “entire place” offers.

  • Private Room: These are single rooms in a bigger property. These listings attract guests who have no problem with shared spaces, such as kitchens and bathrooms. Travelers passing through the city or students on a budget tend to choose these.
  • Shared Room: These are similar to private rooms, except the guest can have another person sharing the room with them. These options often attract guests who are younger and more budget-conscious, like backpackers. 

The list is not exhaustive, but it shows how STRs are attractive to guests with varying budgets. Based on how guests generally respond to economic changes, it’s safe to assume that higher-class or luxurious properties would fare better in good economic times, while lower-class or budget ones will become necessary in tougher times.

The bottom line is you should consider the guests’ needs and preferences to diversify your STR portfolio and remain profitable in all parts of the market cycle.

Conclusion

The goal is to diversify your STR portfolio to appeal to a broader base, creating more stable revenue streams in your investment model. Doing so will help you weather market cycles and peak seasons, helping you meet the increasing demand for STRs in the post-pandemic world.

Any other tips on how to diversify a portfolio that’s focused on STR investments?

Image courtesy of Alexandr Podvalny

Categories
Landlords

Should Tenants Be Allowed to Make Home Improvements?

Nothing is worse than having a tenant who took “please feel at home” way too seriously.

While some tenants will only install their own wall decor or child safety latches on kitchen cabinets, some tenants make more permanent changes to the rental without your permission. This creates a whole lot of trouble—broken lease agreements, depleted security deposits, and costly restorations when they finally move out.

So, should tenants be allowed to make home improvements in any circumstances? Let’s look at some considerations.

Common Home Improvements to Expect from Tenants

Here are some examples of rental property alterations often done by tenants:

  • Painting the interior walls
  • Changing light fixtures
  • Changing appliances
  • Installing new locks on doors
  • Upgrading security systems
  • Changing the landscaping/garden

While these changes may be considered an actual improvement or upgrade to the property, you need to ask yourself the following questions before allowing them:

  • Will your tenants do a good job? They may not have the skill to carry out the project and may not adhere to safety or industry standards.
  • Who will pay for the improvements? They might expect a decrease in rent due to work done and materials used—even if the changes made are not up to par. 
  • Can you reverse the renovation? It’s possible that they deviate from the purpose of the original design (e.g., laminated floors are easier to clean than hardwood, simple landscaping is easier to maintain, etc.), which could require reversals in the future.
  • What does the lease state? Allowing them to break agreements might lead to them pushing their luck—further ignoring other clauses beyond just home improvements. 

You need to remember that your rental property is an investment—one that you should take ownership over, improve, and maintain according to your standards. Moreover, your tenants should see the importance of adhering to the contract and, ultimately, respecting you as their landlord.

What to Do If They’ve Done It Already

Should you discover that they’ve already made the improvements without authorization, here are three steps that landlords should do:

  1. Send a written notice of the home alteration, expressing your disappointment that they did not notify or seek permission before implementing the changes. Point out the specific lease clauses that they have violated.
  2. Warn the tenants that there should be no further changes done to the property without permission and that you’ll happily consider any changes they might still want to make.
  3. Outline the consequences of their action. This could range from just a fair warning to requesting that they reverse the renovation made—at their expense. If the alterations are extreme, you can deduct the cost from their security deposit upon Move-Out or proceed with eviction due to lease violation.

How to Prevent Tenants From Making Unauthorized Home Improvements

As they say, prevention is better than cure. So if unauthorized home improvements have been made by your tenants, make sure to review the lease agreements. Ensure that the following lease clauses are clearly stated:

  • Improvements that can only be done by the landlord or with landlord’s written permission
  • Improvements that can be done by either party
  • Consequences for alterations that devalues the property

Your goal is to create a space for tenants to freely improve their living conditions while being firm and clear with the boundaries. Even if you lucked out this time and the tenants did a great job improving the home, an unclear lease will open you to future problem alterations…and your luck may just run out.

Conclusion

Every rental property will need renovations and improvements from time to time. From repairing to re-flooring, landlords need to stay on top of their rental properties and make the necessary renovations when needed.

If your property can use a bit of work and you see that the tenants are capable of doing a good job, you should have no problems allowing them to improve the space. The bottom line is to make sure that they understand the boundaries and adhere to your lease agreements, and you should be good to go.

Do you allow your tenants to make home improvements? What are your non-negotiables? 

Image Courtesy of Polina Tankilevitch

Categories
Wholesaling

6 Things Beginner Wholesalers Wish They Knew

Remember Carlton Sheets—that real estate guy who was always on TV in the late 1980s?

He was a legend in the industry, and one of the key influencers who popularized real estate wholesaling. He had a course on wholesaling that customers took through a toll-free phone number, where his iconic line encouraged people, “You can get started in real estate with no money!”

Sheets isn’t as famous nowadays, but the excitement he created for wholesaling is still alive and well. He inspired many people then and now to get involved in real estate wholesaling even if they didn’t have any background in it.

While the process can differ from case to case, the typical wholesaling procedure goes like so:

People get into wholesaling because it sounds so simple, but they don’t realize how difficult it is. While all beginners will face common pitfalls and inevitable challenges, our goal is to equip you with the knowledge to tackle them, head-on.

Read on to learn the seven things beginner wholesalers should know before getting started!

1. Generating Wholesale Leads is Harder than You Think

Most people read about real estate wholesaling and think it’s easy, as there’s little capital involved in the investment. However, research shows that most real estate agents fail in their first year because they can’t find enough good deals or buyers.

The reality is that generating wholesaling leads is difficult. And, like new real estate agents, most new wholesalers don’t have a network and don’t spend enough time building one.

Beginner wholesalers will typically call all their friends and family, get a deal or two, and immediately exhaust their options. Relying on friends and relatives isn’t a scalable strategy, so many wholesalers get through their first year and quickly fizzle out.

That’s why the most important thing to know as a new wholesaler is how to generate deals and build a pipeline that provides a consistent flow of deals.

Here are six of the ways you can generate wholesaling deals:

  • Make offers on the Multiple Listing Service (MLS)
  • Make offers on the United States Department of Housing and Urban Development (HUD)
  • Make offers at auctions, both offline and online
  • Make networking a priority
  • Make time to drive by neighborhoods and find distressed properties
  • Make your own website or Facebook page to get inbound deals

We’ve gone over the details of these methods in our article about finding wholesaling deals if you want to know more about the specifics of each one.

Once you get some momentum going, you can also hire an assistant to help you make offers, find listings, and close deals.

With your deal generation system set up, the next step is to learn how to analyze the deals properly, because…

2. Analyzing Deals Correctly Will Make or Break Your Success

Wholesalers need to position themselves as expert deal finders who make buyers’ lives easier. Your goal is to build a good reputation for yourself and establish your business towards growth and expansion.

To do so, you’d need to learn how to properly analyze wholesaling deals and become a master in creating value for buyers and investors.

Here’s how to accurately analyze your deals:

  1. Determine the After Repair Value (ARV): Run comparables (comps) in the area using websites such as Zillow or Redfin to see how a property will be worth AFTER it’s been fully renovated (AKA the “after repair value”). Comps are the properties within ¼ – ½ a mile of your property that are of similar size, type, beds/baths, and age, and have sold within the last 6 months.

Here’s the formula for determining your ARV:

  1. Evaluate the Estimated Repair Costs (ERC): As properties for wholesaling are often distressed, you need to understand the rehabilitation costs to know whether or not a particular property is really a good deal or not.

Here are some quick tips for estimating the repair costs accurately:

  1. Finalize the Ideal Purchase Price (The 65% Rule): After determining your ARV and ERC, you’ll now calculate the ideal purchase price for your investment property. You can use The 65% Rule to compute this, where the formula is as such:

The 65% Rule is the wholesaler’s adaptation of the flipper’s 70% Rule—a rule of thumb that tells the flipper to purchase properties at a maximum price of 70% of its ARV. As a wholesaler, you can have a 5% difference that enables you and the buyer to make a profit—especially when you’re selling to flippers. Investors are likely to steer clear from a price that is more than 65% of the ARV (minus the ERC).

Keep in mind that the opposite is true: if you don’t know how to analyze properties and offer great deals, you will struggle with building your reputation and growing your network of buyers and investors.

3. Having the Right Documents and Contracts is Key

Wholesaling is basically buying and selling contracts, so getting this part right is pretty important! However, a LOT of new wholesalers don’t even have the appropriate paperwork in place before getting started, and that can lead to them getting burned.

You need to have the right paperwork with a contract that is assignable:

Let’s take a look at the key factors a wholesale contract needs to have:

  • The Wholesale Real Estate Assignment Contract: This is the legal document that makes it possible to transfer the right to purchase a property from the wholesaler to an end buyer. Once you and the seller enter an equitable conversion (making the eventual buyer the owner of the property once they sign the contract), you need to draft an Assignment of Real Estate Purchase and Sale Agreement:
    • The Assignment of Real Estate Purchase should have a copy of the original purchase and sale agreement between you and the seller, informing the end buyer of all the terms, contingencies, conditions, and payment terms involved in the deal.
    • The Sale Agreement should say that the buyer will purchase the home from the seller and assume property ownership—effectively absolving you from all responsibility.
  • The Wholesale Real Estate Purchase Agreement: There are many components in this agreement. The Wholesalers Toolbox have shared their templates to get you started on your contracts and agreements. There are also other sources you can find on the internet, just make sure that include the parts highlighted in this sample:

Make sure you have all of this in place before finding your first deal so you don’t waste time or end up scrambling to pull the documents together when an opportunity comes along.

4. Keep Your Profit Margin Private by Following the Double Closing Technique

The double closing technique in wholesaling is a popular strategy, because it allows you to keep your wholesaler fee private. In other words, it lets you hide your profit margin. You won’t have to explain to potential buyers about the price differences between your contract and the seller’s, thus saving you the headache of being cut out of the transaction.

This method contrasts with contract assigning because you won’t have to purchase the property—you only facilitate the transferring of contracts. In a nutshell, the technique is closing two independent deals that happen almost simultaneously, sometimes within a few hours or weeks. One of them is with the property’s original seller, and another is with the end buyer.

As the wholesaler in both these transactions, you need to treat them as individual deals with their settlement statements:

  • Statements with the seller are referred to as HUD-1, and outlines the purchase price you have negotiated and settled on. HUD-1 includes any prepaid interest charges, homeowners’ insurance fees, title insurance, property taxes, and closing agent fees.
  • Statements with the buyer identify the final purchase price you have agreed to sell the property. This deal is contingent on the first closing with the original property owner.

For more information on this technique, you can visit here. But simply put, the process goes like so:

It’s not rocket science, but it does take a lot of leg work. There is also the stress of indecisive parties, people backing out suddenly, and aligning the schedules of everybody involved in the deal.

The double closing technique is a good alternative to contract assigning, especially when used as an exit strategy. Of course, you would need to put “more skin in the game” by taking legal possession of the property for all of five seconds, but if contract assigning doesn’t work, double closing can increase the chances of a deal transpiring.

5. How to Turn Any Lead Into a Deal

Now, how do you handle “imperfect deals” or deals that seem tough to profit from?

The good thing about real estate investing is that there are many ways in which you can still make a profit. As long as the seller is motivated, you can find a way to make money off the property.

For example, if the seller owes more than the house is worth (i.e., upside down in the mortgage), you could find a lender that will agree to wholesaling the property as a short sale. These deals are rare but entirely possible.

Here are two nontraditional ways to wholesale a short sale property:

  • Buy in a Land Trust: This agreement is where a Trustee agrees to hold the property title for the benefit of other parties, known as the Beneficiaries. The name you’ll put in the purchase contract is the Trustee (the primary buyer). The buyer will then submit copies of the trust documents to the bank, as lenders will require the buyer’s LLC documentation to be submitted along with the offer. Once you get to closing, the beneficial interest of the trust gets assigned to the end buyer for a wholesaling, assignment fee.
  • Create an LLC: You can also create an LLC with the end buyer (typically costing anywhere from $100 to $500), buy the property as an LLC, and sell it to the end buyer. The LLC’s name on the short sale approval letter will not change when the buyers change hands, and you’ll still charge a wholesaling fee.

Alternatively (and, if you ask me, the better way to earn money from real estate long-term), you can take ownership of the property and turn it into a cash flow generating rental. Thus, you’ll extend yourself into becoming a rental property investor—and still make money off the property.

6. Adapting to Shifting Markets is How to Scale & Sustain Your Wholesaling Business

Just like any other business, you need to stay updated with market shifts that affect your business. Real estate is a dynamic industry that requires you to spot market trends early, collect relevant insights, and adjust the way you conduct your wholesaling business constantly.

Take the recent pandemic, for example, that changed the industry for years to come. We noticed four trends for wholesalers to keep watch of to stay successful in 2021 onwards:

  1. Work-from-home Becoming Mainstream: Many office workers move out of dense cities and into residential areas with more freedom and space. Wholesalers, therefore, need to pay more attention to the rural areas where buyers are now increasingly interested in.
  2. People Upgrading Their Current Homes: With the pandemic forcing people to stay indoors, people are now willing to invest in comfortable homes with larger rooms, backyards, bigger patios, and more. Wholesalers need to pay attention to the evolving preferences of homeowners and their heightened attraction to certain home features.
  3. More People Purchasing Homes: Interest rates hit an all-time low in 2020, and the forecast for 2021 reflects similarly. With these low mortgage and interest rates for properties, people want to own homes more than before. While wholesalers will have a harder time finding properties, determined wholesalers that do secure homes will sell faster and at top dollar.
  4. Decrease in Housing Inventory: Given the ongoing transmission of COVID-19, people have put off selling their houses to minimize contact with strangers. Competition within the housing market then increases—decreasing the chances of wholesalers getting properties at a discount. Nevertheless, it also makes exiting deals much easier and at a higher profit—where supply is low, demand is high (due to low mortgage rates), and home prices are soaring.

The pandemic might be a one-time thing, but disruptions and changes will always happen in the industry. The only thing constant is change—which means wholesalers should stay updated!

Conclusion

Wholesaling real estate is deceptively easy… And it is if you know what you’re doing.

Start on the right footing, and you’ll set yourself up for real estate success in the wholesaling business. Continue to learn from successful investors who freely share their best tips, join networking groups to discuss with other wholesalers in your local area[3] , and get familiar with:

  • Generating wholesale leads
  • Analyzing properties properly
  • Securing the right documents and contracts
  • Learning how to double close wholesale deals
  • Turning any lead into an investment opportunity
  • Adapting to shifting markets

With these in your back pocket, you can be just as excited as Carlton Sheets about real estate investing. You’ll have the knowledge required to truly become a successful wholesaler and “start on your own path toward financial independence” today.

Image courtesy of Djordje Petrovic


Categories
Flipping

How an S Corp Election Can Help Flippers

While house-flipping is potentially very profitable, there’s an expensive catch.

You might have to pay a self-employment tax, which is a whopping 15.3% of your profit. That’s a significant amount of money that can go to your next vacation or property you want to flip!

Nevertheless, there is a way to set up your business in such a way that you’re not required to pay the tax. Let’s take a look at how an S Corp election can help you pocket more of your flipping profits.

Why House Flipping is Subject to Self-Employment Tax

While the usual real estate investments such as buy-and-hold are considered a passive activity, flipping homes conducted in a limited liability company (LLC) are active transactions—required to pay self-employment tax on top of the income tax.

Let’s define these two things that come with flip-and-fix projects.

Active Income. Active income applies to anybody who runs a business where one earns ordinary income from performing a service or selling a product. Business owners must pay the 15.3% self-employment tax up to a net profit of $128,400. (Beyond this threshold, you’ll only pay 2.9% as the Social Security portion of the self-employment tax is removed.)

Self-employment Tax. In essence, self-employment tax is similar to payroll taxes withheld from an employee’s wages. For self-employed individuals like house flippers, however, they must cover both the employer and employee portion of the tax. In addition, members of an LLC taxed as a partnership are considered self-employed individuals—which means their earnings will be subject to self-employment tax if they participate in the partnership’s trade.

The 15.3% self-employment tax of your gross salary does chip away at every dollar you earn. Moreover, 15.3% comes in before including the marginal tax rate from the federal and state perspectives. For example:

So, naturally, we want to find a way to save on taxes. One way is to run your flip-and-fix business out of an S Corp instead of an LLC or C Corp. Let’s talk about how you can do this.

How an S Corp Election Can Save on Taxes

First, set up an LLC or C Corp, then elect to have it taxed as an S Corp. Said structure is a tax entity or federal tax election—not a legal one. It’s not for asset protection but for reducing your exposure to tax.

By conducting your business this way, self-employment taxes only apply to a “reasonable salary,” and you’ll pay the remainder of your income as a dividend—not subjected to self-employment taxes. 

Here’s how it’ll go: Set up the S Corp, set up payroll, and begin paying yourself a W2 wage. The self-employment tax will only apply to the W2 wage, and the rest of the income will be considered a cash distribution or cash dividend. Of course, you can only do this with an S Corp route.

Take a look at how the situation now changes and how much you can save:

If you earn $100k with no S Corp (either as a Sole Proprietorship or an LLC), you’ll report your income as Schedule C. You’re going to pay $15,300 on self-employment taxes even before the marginal tax rate or state taxes come into play.

However, if you’re taxed as an S Corp, you can pay $50k to yourself as a W2 wage and have the other half as a cash dividend. With the $100k split up, half of it won’t be subject to the 15.3% tax—and you can pocket $7,650 just like that.

Just remember to never pay yourself the entire profit in W2 Wages. The whole point of setting up an S Corp is to help you reduce taxable income!

Conclusion

There are so many other factors that will come into play, so make sure that you talk to your accountant before considering this tax election for your flipping business. You may be able to amend your LLC to take advantage of this technique or establish a new LLC to start conducting your business as S Corp from the get-go.

Either way, it’s a good strategy to save on taxes legally!

Image courtesy of Jopwell

What do you think of this technique? Any additional tips on how to save on taxes?

Categories
Flipping

How to Find the Ideal General Contractor to Flip Houses

Finding a general contractor (GC) for your house flip can be challenging.

You want someone who knows what they’re doing, is trustworthy, has affordable prices, and has good reviews. This means you need to do proper research before hiring a general contractor—don’t hire the first one you find!

As a flipper, your main goal is to earn a high flipping profit in return for your investment. To do that, you need to renovate the house within a specific budget and timeframe, which means using contractors who stick to deadlines and understand the importance of flippers’ margins.

While simple repairs are easy to budget for and can be done within a month, more complex renovations can easily incur budget overruns and take more than a couple of months to complete. In these cases, it’s best that you hire a general contractor to handle the project for you, or assemble a team of go-to contractors that you work with regularly on your flipping projects. Which you go for will depend on your needs, but this article focuses only on general contractors.

Let’s go through some best practices for finding the ideal general contractor for your flip projects.

Independent Contractor vs. General Contractor

Before we go any further, it’s important to make a distinction between independent and general contractors:

  • Independent Contractors: These are contractors that you directly contract to perform tasks on a contractual basis. They complete the project themselves, without the help of subcontractors.
  • General Contractors: These are also directly contracted; however, tasks are subsequently contracted to subcontractors to complete. They complete the project along with their subcontractors instead of completing the project by themselves. They also handle all the administrative tasks needed (e.g., paying subcontractors, securing building permits, getting insurance for all workers, etc.).

General contractors will coordinate with necessary subcontractors on your behalf and oversee the project for timely and on-budget completion. They are ideal for major renovations and flips, because you can get all aspects of the renovation handled by a single entity.

What to Look for in a General Contractor

Here are the key things to look for in a general contractor:

  • A Good Reputation: The best way to find a general contractor is by asking for recommendations. Contractors work largely based on referrals. Ask your friends and the real estate community if they can vouch for somebody reliable, communicative, and punctual.

Once you have a list of options, go the extra mile to read online review websites and visit the Better Business Bureau to check their reputation and ask about the projects they’ve worked on before. 

  • A Good Contract: Hiring a GC on a handshake is not a good idea. You’ll want a contract that spells out what they will do and what you will do, with deadlines. The more thorough the better! Otherwise, there’ll be no accountability and your project can go sideways quickly.
  • Appropriate Payment Practices: A good general contractor will accept payments in the form of checks and wire transfers. They would also agree to sign a lien release before payment and negotiate with you on the payment schedule.

Stay away from contractors who want you to pay in cash or a lot upfront. Cash payments are not illegal; however, contractors who ask for them might be avoiding paying income taxes. This is a practice done by less-than-reputable contractors. Moreover, a down payment of 30% of estimated costs is typical to cover an initial retainer and materials, but an established contractor won’t need your full payment to start the job.

  • Local Coverage: Hiring a general contractor who lives and operates within the area of your flip is your best option. They will know the local building codes, city inspectors, have a network of subcontractors ready to help them, and you can easily contact them in the event of an emergency.
  • Proper Licensing: General contractors need to be licensed to pull the necessary permits for your property. Without these, your property won’t abide by the local building codes or pass inspection. You’ll end up financially responsible for bringing up the property to the required standards.

Instead, verify their license by asking for the license number. Check it with your state’s licensing board. For licensure information in Michigan, visit the state’s Department of Licensing and Regulatory Affairs website for details on the Bureau of Professional Licensing’s requirements.

  • Proper Insurance: General contractors should be insured for General Liability Insurance and Workers’ Compensation. You can ask to see a copy of their policy and call up the insurance company to verify the information. The insurance should be current and have clear policy limits for you to check. You should also be added as an “additionally insured” on their policy, until your project is complete.
  • Warranty in Writing: General contractors should provide warranties that cover the work they’ve done in your property. A warranty assures them that they won’t be coming back for multiple repairs over an extended period of time (warranties typically last one year only) while guaranteeing you a good renovation result.

This list isn’t exhaustive, but it’ll put you on the right track in finding your ideal general contractor.

Questions to Ask During the Interview

As part of the process, you should also have an interview with the general contractor. Here is a list of questions you can ask to help you identify those who’ll fit your criteria:

  • How many people work for you? How long has your crew been working together?

You want to work with an established company that has a large team of managers and assistants.

  • Where are you operating, and what is your service coverage?

You want to work with a local company that knows its way around renovations in the area.

  • What similar past projects have you completed?

You want to see their experience concerning the project you’re giving them. If they’ve never done what you need them to do, ask them how they will approach the project.

  • How do you communicate with your clients?

They should give you daily or weekly progress reports with photos and send itemized, detailed quotes and invoices.

  • For this project, will you be using subcontractors or just your own team?

If they are using subcontractors, make sure that all workers are trained, licensed (if applicable), and insured.

  • Are you licensed and insured?

Licenses should be updated and registered in the state where your property is situated. Insurance should include General Liability Insurance and Workers’ Compensation.

  • What would our contract look like?

Not all general contractors will have contracts. If they don’t, you can draft one up. Regardless, have your lawyer review it before everybody signs.

  • Will you provide warranties?

Make sure the warranty is written down and will conform to the requirements of the contract.

  • How will the payment schedule and plan work? Will you agree to sign lien releases?

Agree and sign the payment schedule before the job begins. They should agree to sign lien releases before payment.

  • Have you ever had to deal with lawsuits?

If they’ve been sued, ask what happened and how they handled it. If they’ve sued a client, ask for further information and check public records. If they’ve had serious accidents before, ask how they dealt with the situation and what they’ve improved to make sure it doesn’t happen again.

Conclusion

We hope this article is enlightening and helpful in your search for a general contractor. It might take a lot of effort, but having a reliable and skilled general contractor will protect your budget and timeline for a successful and profitable house flipping project.

The better your general contractor, the more houses you can flip fast, at the highest quality, and for the most competitive price.

Any additional tips for finding the ideal general contractor as a flipper?

Image courtesy of Andrea Piacquadio

Categories
Landlords

How Landlords can Easily Raise Rents

Many landlords dread raising rents on their tenants for fear of the tenants moving, or the landlord just finds the whole process unpleasant. So, it’s not uncommon to find landlords that haven’t raised rents in 2, 3, or more years. 

Raising rent is actually a regular (albeit not the most fun) part of being a landlord. A landlord should raise rents as the market dictates, because: 

  • Keep up with inflation
  • Be able to afford rising maintenance costs
  • Accommodate property tax & insurance increases
  • When you’ve renovated a property to a higher standard

When that time inevitably comes, you need to know the right way of increasing your rent. Doing it the wrong way might cost you, tenants, leading to longer vacancy periods and costlier turnovers. Plus, no landlord wants to feel like the bad guy, so it’s important to show you’re being fair by handling rent increases diplomatically.

This article will teach how you can raise rent amounts and generate more income while communicating the situation professionally to your tenants. We’ve even included a sample rent increase notice that you can use for informing your tenants as amicably as possible. 

How should you approach a rent increase?

Depending on local and state laws, the required notice period for rent increases can range from 30 to 120 days. In Michigan, you have to give 30 days’ notice, but if you’re raising rent by 10% or more, you have to inform the tenant 60 days ahead of time.

Most people draft a letter informing tenants of the increase (like the one we’ve included below) and send it out to them, but there’s another way to approach this: 

  1. Go on Zillow, the MLS, or Rent-o-Meter to find what the market rent for this property is.
  2. Compare that to what the tenant is paying.
  3. Submit that information to the tenant and ask them what seems fair in terms of an increase

Note: At this point, you haven’t told them the rent was going up, but you’ve implied it. You’ve also involved them in the decision, so they’re more willing to accept it, making this a more subtle, non-aggressive approach to raising rent.

  1. The tenant’s response will typically be to offer 50% of the full increase, although some will say they don’t want to pay any increased rent at all. A good way to address either of these scenarios is to ask: “Why do you think that low of an amount is fair?” Make them defend it. 
  2. Then they’ll explain why they shouldn’t pay an increase (personal emergencies, poor maintenance on your part, etc.). Then you can ask: “Are you sure that’s your best offer?” 

The best part about this is that it lets you raise rents without TELLING the tenant there will be an increase, but rather including them in the process.

Tenants may even surprise you by offering more than what you expected! 

How much can you increase?

Ideally, you’ll want to keep the raise to less than 5% per year. Any higher, and your tenants will most likely move away—even if the rate is similar to your competitors in the market.

Why?

Think of the other rule of thumb that’s often used in screening tenants: rent amounts should only be a third of the tenant’s monthly income. This means most people can’t afford to spend an additional hundred dollars a month on rent payments – unless the tenant base in your area is on the up and up, like because of new employment opportunities or developments nearby.

Jacking up the amount too high without good reason will therefore jeopardize your rental income, as tenants will struggle to pay fully and on time. 

Plus, once a tenant has been there a while, they feel entitled to zero rent increases forever. If you raise it from $800 to $900 overnight, they’ll freak out. Even if the rent in the area is $1,100, they can’t afford it. So you’re better off with consistent smaller rent increases, like $25 a year, rather than waiting 3 years and increasing your rent all at once to reflect current market value.

On top of this, some cities have rent control laws in place. These maximum rent caps on what landlords can charge and are implemented by the government. Be aware of your local regulations before implementing any rent changes (just FYI, rent control isn’t allowed in the state of Michigan, but it is common in markets in New York and California).

Sample rent increase notice

When you’re ready to implement the raise, here’s a sample rent increase notice that Colleen F. shared in the BiggerPockets Forums. This letter is great because it helps tenants understand the landlord’s own financial obligations and view an increase in rent as a necessary business decision, rather than thinking you’re just being greedy.

Feel free to use it as a basis for crafting your own notice:

Dear John Tenant,

Thank you for being a tenant here at 123 Main St, Apt 1. Our goal is always to provide a nice place to live, at a fair price. Whenever the prospect of raising rent comes up at any property, we take a good hard look at it to make sure it’s necessary.

In that light, we have decided it is necessary to raise the monthly rent on your unit, effective September 1, 2020, to $1,050 from $1,000. This is partly to offset the increasing cost of property taxes, insurance, high heating expenses, maintenance costs, and upgrades since our purchase of the building in 2010.

Even after this increase, we believe we are still at or below the average market rent for a unit of this type. Rather than pay an increase, you may choose other housing. Should you intend to vacate at the termination of your lease, the original lease agreement states that you have to provide 30 days written notice of your intent to move. If you choose, signing this form checking off that you will not renew and returning the form to us 30 days in advance of your expected renewal will be considered your written notice.

Sincerely,

Management

Conclusion

There’s no guarantee that your tenants won’t complain about an increase in rent. However, if you increase your rent fairly and strategically, you can manage their expectations and prepare them ahead of time to budget appropriately. 

When they’re prepared and you communicate openly with them about the situation, your tenants won’t see you as the bad guy for increasing their rent. 

Any other concerns related to increasing rent amounts? Leave a comment below!

Categories
Wholesaling

5 Wholesaling Myths —Debunked!

Real estate wholesaling often gets a bad rap, but is it fair to call this an illegal or shady form of real estate investing? How did it get this reputation in the first place?

The problem is, wholesaling is usually chosen by first-time investors as a way of getting into the industry with little or no upfront capital required – which is great. But it also means that newbie investors get into this field and make a lot of mistakes, and that has led to some serious misconceptions about wholesaling over the years.

If you’re an investor who’s excited to get started as a wholesaler but is hesitant because of things you might have heard about it, this article will pull back the curtain on five of the most pervasive wholesaling myths. 

Wholesaling real estate is not outright illegal, but it’s governed by specific laws that require you to have certain contracts and documents before you can proceed. Wholesaling gets its bad rap largely due to the illegal practice of unlicensed brokering, which isn’t the same as wholesaling.

1. “It’s illegal to wholesale real estate.”

To ensure full compliance with local real estate law, here are some steps to take when wholesaling properties:

  • Have a bilateral contract with the seller that stipulates your acquisition of the equitable interest.
  • Have a proof of funds letter to prove your intent to purchase.
  • Wait until the house is under contract with the original seller before finding new buyers.

In the event of needing to defend your wholesaling activities in real estate commission hearings, having everything documented is essential for proving you’ve acted within the law.

2. “Wholesaling is only for beginner investors.”

Just because it takes minimal capital to get started with wholesaling, doesn’t mean it’s easy. For example, since you’re the middleman in deals, a buyer or seller can easily get rid of you to avoid paying an additional wholesaler’s fee—effectively taking you out of the equation altogether.

Secondly, while there is a low barrier to entry, wholesaling has a high barrier to sustainability. People tend to think that wholesaling fulfills a need in the market, where investors are looking for people to help them find their next deal. In reality, the investors themselves are already good at finding deals themselves. This makes finding good deals extremely hard. Plus, investors don’t want to subcontract finding deals to wholesalers, and those who do certainly don’t want to pay top dollar. 

Wholesaling can be a stepping stone for beginners to get into real estate investing, but that doesn’t discount the fact that it’s highly lucrative for experienced wholesalers. Mastering the skills and acquiring the connections for a steady flow of good deals enables you to earn as much as other investment strategies.

3. “Wholesaling is inferior to house flipping.”

Let’s put the two investment strategies side-by-side for an accurate comparison:

Depending on your reason and goals for investing in real estate, you might choose one over the other. Either way, based on these key differences, wholesaling isn’t inferior to house flipping at all, it’s just a very different approach with a lot less maintenance required.

4. “Focus on buyers who’ve already bought from you.”

Often called the “easy button buyer” mistake, this refers to the tendency for beginners to send future deals only to the buyers that were willing to close on earlier deals. This is a common myth that wholesalers believe to be effective, but in reality, limits your potential returns.

Think of it this way: businesses thrive on supply and demand. After closing a couple of deals, you now know the area, the numbers, and what features attract more particular buyers. In other words, you have the supply to meet the demand in more than a couple of markets.

Position yourself as an opportunity to as many potential buyers as possible, and you’ll ensure you have a scalable wholesaling business for years to come.

5. “A buyer’s list is necessary to be successful.”

Many investors will say that you need a buyer’s list to be successful in wholesaling, but this is not exactly true. 

The typical buyer’s lists are full of investors who do a lot of deals on a regular basis, meaning they’re serious buyers who can close with cash in 10 days. This is exactly what you want as a wholesaler, but you don’t need to have a buyer’s list to do this.

Instead, new wholesalers should focus on finding quality deals, rather than quality buyers. If you can find a great property, serious buyers will follow.

We’ve written elsewhere on how to find buyers for your wholesale deals, should you need further tips.

Conclusion

All these myths surrounding wholesaling real estate may give some the impression that this investment strategy is shady and unsustainable. However, with these common myths easily debunked, you can see there are actually many solid reasons that prove why wholesaling is an excellent way to invest in real estate. 

If you want to learn more about wholesaling in the current market, we’ve also written an article that explains the top five insights you need to successfully wholesale real estate after a year of COVID-19.

Image courtesy of Monstera

Categories
Landlords

How to Market your Rentals Online: Screen Appeal and Listing on Digital Platforms

From digital walk-throughs to Zoom tenant interviews, real estate marketing has officially transitioned to digital in light of the COVID-19 pandemic.

Virtual showing techniques aren’t new, but COVID-19 has certainly pushed the industry to adapt as a necessity. Landlords that didn’t have videos of their properties pre-COVID are now rushing to create virtual tours and trying virtual staging methods.

At this pace, digital marketing will fast become an integral and permanent part of real estate marketing before we realize it!

What does this mean for landlords? 

Prospective renters are now viewing and shortlisting properties from their screens, making “screen appeal” a crucial factor to promote your rental property. You want your offer to stand out where the prospective tenants are: online.

In this article, we’ll go through the ways to increase your property’s screen appeal, write an effective ad online, and list your properties where tenants are most likely to find them.

Increase screen appeal with noticeable features

First, you need to make your rental look impressive in photos. To do this, invest in features that will stand out in photos—even if the prospect browses on their tiny phone screens. 

These are the things that will make a huge difference in digital listings:

  1. Sparkling kitchens with shiny appliances, glossy countertops, and newly-painted walls and cupboards
  2. Spotless bathrooms with new showerheads, clean mirrors, and re-grouted tiles
  3. Fresh blinds and curtains without any mold or grime that are updated to fit the aesthetic of the property
  4. Blemish-free walls freshly painted with a color that makes the room look bigger, brighter, and homier
  5. Brand-new fixtures everywhere—from light switches to faucets to doorknobs and fly screens
  6. Clean carpets that even look like they smell great
  7. Bright lights in every room to make the rental property feel new, and more importantly, show that you’re confident enough to put everything in the spotlight

Make sure that you use a camera that does your rental justice! None of the spectacular features you updated and cleaned will be seen if you use the front camera of your beat-up phone. If you need to hire a photographer for decent equipment, it’s worth the one-time payment to get a lifetime of great photos for your listing. 

Write an effective ad that highlights relevant details

Once you’ve updated your rentals with photogenic features, you need to post them on digital platforms. But what do you say? How do you write an effective ad that attracts your tenant pool? 

Here are the important factors to focus on:

  1. Write a great headline. Rentalutions’ formula suggests including the key information tenants look for (e.g., number of rooms or location) plus one feature that makes your rental unique.
  2. Use professional word choices that add value to your listing, as long as they’re an accurate description of your property. You want to avoid generic words such as “great” and “nice”, instead, choose words like: upgraded, spacious, tasteful, landscaped, modern, luxurious, and charming.
  3. Add more information on the key features. Knowing what tenants want (as you should), make sure to highlight these features in your ad. Are you expecting to attract tenants who put importance on parking spaces, walkability, nearby supermarkets, or proximity to a great school? Your copy should indicate that.
  4. Add detailed property descriptions. Similarly, also indicate what the tenants will want from the property itself. How many rooms, floors, and bathrooms? Will they be attracted to a lush backyard or extra storage areas? Flesh out all of the important details to attract tenants.

Lastly, prove what you said with great photos! When you use great photos to compliment everything that you verbally promoted on your listing, your screen appeal will skyrocket. This is where the prospective tenants should go “Wow! They weren’t kidding!”

List your rental on industry-popular websites

Armed with your impressive photos and well-written ad content, it’s time to post your listing where it matters. Most people are baffled by how many options there are to list online, especially since there isn’t a one-stop-shop solution that posts to all the rental listing sites. 

Zillow—the favorite of most landlords—allows you to create detailed listings that they’ll syndicate out to 26 partner sites (including Trulia, Hotpads, and MSN Real Estate), but it still doesn’t cover all of the sites available.

To get started, check these sites that are known to be effective and user-friendly:

  1. Zillow
  2. Trulia
  3. Hotpads
  4. Craigslist
  5. Facebook

Apart from those, you can also consider these lesser-known platforms:

  1. Apartments.com
  2. Apartment Finder
  3. Apartment Guide
  4. Apartment Home Living
  5. Apartment List
  6. Backpage
  7. Byowner.com
  8. Cozy
  9. Doorsteps
  10. Move
  11. My New Place
  12. Nextdoor.com
  13. Oodle
  14. Realrentals.com
  15. Realtor.com
  16. Rent.com
  17. Rentals.com
  18. Rentdigs.com
  19. Rentlinx
  20. Saletraderent.com
  21. Sublet.com
  22. Walk Score
  23. Zumper

All of these websites allow you to post for free. You just need to do some research and decide which platform enables you to attract the tenants that you want. For more details on the sites we mentioned above, check Smart Move and Landlordology.

Conclusion

Technological development waits for no one. In order to keep up and remain competitive in the rental property business, it’s time to level up with online marketing!

The steps are easy enough—simply increase your property’s screen appeal, write an effective ad describing the best parts of your property, and list them on websites where tenants are likely to browse for new homes.

Any other tips on how to market rentals online? Where are your rentals listed so far?

Image courtesy of Joshua Miranda

Categories
Landlords

Eco-Friendly Tips to Maintain Lawn and Garden

As a landlord, there are several reasons you need to take care of your lawn and garden:

  • Good landscaping is a great way to increase your property’s curb appeal.
  • Allowing weeds to thrive or leaving soil exposed might lead to flooding and pipe damage.
  • Large weeds can even destroy foundations, fences, and outbuildings.

For all these reasons, it’s actually more cost-effective to do preventative outdoor maintenance (and make sure your tenants do, too).

One of the ways to make the task easier, cheaper, and healthier is by using sustainable, eco-friendly methods. Taking care of plants and greeneries without harmful pesticides isn’t as hard as many would think! And, depending on the type of tenants you’re aiming to attract, your eco-friendly garden could be a major selling feature.

Even if you don’t have a green thumb, these quick and easy tips will help you maintain a healthy lawn and garden while being environmentally friendly! 

Leave grass cuttings on the lawn.

Grass cuttings act as natural fertilizers, providing essential nutrients to the lawn and garden. They decompose quickly into the soil, adding nitrogen and acting as a moisture barrier. They also eliminate the need for commercial chemicals that pollute the atmosphere, taint the groundwater, and add unnecessary maintenance costs to your property.

After mowing the grass, skip the rakes and leaf blowers! Just leave the cuttings on the ground—you’ll save time and money, without compromising your garden’s lushness. 

Use yard waste and kitchen compost as fertilizers.

Composting is a great way to reuse resources and create high-quality fertilizer that’s completely free. It’s achievable even in apartment buildings that don’t have garden space—you can use countertop compost containers or a technique called Bokashi composting.

In most cases, you can simply have a compost bin where tenants can throw in their food scraps, then add them to an outdoor compost pile. If they’re not interested in doing so, you can also maintain your own compost and bring it to the rental property during the turnover period to fertilize the lawn and garden.

Avoid gas-powered equipment.

Using electric or battery-powered lawn care equipment will cut down your fossil fuel consumption and emissions—especially if you use manual push mowers (which are also free to run). The US Environmental Protection Agency (EPA) reports that a gas-powered lawn mower produces as much air pollutants as 11 cars, and that’s if the equipment is brand new!

If the old-school push mower isn’t quite your style, you can take advantage of electric technology with the many options available in the market. A corded electric mower will also cost you less than a gas-powered one, running anywhere from $150 to $250 on average.

Water deeply, but less frequently.

Your lawn and garden obviously need water, but not all methods will contribute to healthy growth. Here are a couple of techniques to water them properly:

  • Water the area three times a week instead of every day.
  • Program your sprinkler system to go off at midnight for minimal water evaporation.
  • Keep the sprinkler system on for an extra 10 minutes to have the roots absorb enough water.
  • Use smart watering systems to operate them remotely.
  • Devote a few sprinklers to drip systems for water efficiency.

Additionally, consider turning the system off when rain is forecasted. Not only do you get free water, but you also avoid over-watering the lawn and garden.

Create a buffer zone between lawn and waterways.

This last tip is simple yet crucial, especially for homes in locations that are prone to natural disasters.

If your property is near a lake, river, or stream, try to leave a 10-foot buffer zone between the waterway and your lawn or garden. Allow the zone to thrive naturally with vegetation and plants, binding the soil underneath into a strong barrier. 

The area will serve as a physical barrier to prevent fertilizers from entering the body of water, protecting your area from erosion and keeping your property safe during storms, floods, and more.

Conclusion

There are many ways to implement eco-friendly maintenance of your lawn and garden. Most of them are completely free and only require a bit more effort in setting up. 

Pass these tips along to your tenants if you want them to maintain your garden perfectly during their tenancy, and you can hopefully prevent your outdoor areas from getting overgrown while the property is rented out.

By simply leaving grass cuttings, maintaining a compost pile, using electric equipment, controlling the water system, and having a buffer zone for waterways, your rental investment will have a thriving, beautiful lawn and garden designed to last for a long time. Plus, prospective tenants might love the idea of living in an eco-friendly property.

Any other tips that we’ve missed? How are you currently maintaining your lawn and garden?

Image courtesy of Pixabay

Categories
DIY

6 Fixes Novice Flippers Should Avoid DIY-ing

When it comes to DIY, “Why pay someone to do it when you can do it yourself?” is what most new flippers would say… at least until they realize how underprepared and underskilled they are for extensive repairs!

Some renovation projects are tough to do as well as a professional would, even with the best of YouTube tutorials. If you’re not qualified to replace roofs, repair electrical systems, fix the plumbing situation, or install new gutters, doing them yourself could lead to costly and dangerous consequences. 

Faulty work leads to spending more time and money trying to fix your mistakes, if you don’t know what you’re doing. Lots of seasoned flippers can do nearly any project themselves, but many more newcomers to the industry try their hand at things above their pay grade and end up regretting it later on.

So if you’re new to the world of DIY, here are six fixes that should be left to the professionals—even if you think you can do it yourself.

Roof Replacement

The fact that we refer to homes as a “roof over our heads” shows how important good roofing is for a home. Nobody wants to buy or live in a house with a damaged roof!

The roof is such a vital part of the infrastructure—you will want to make sure that it’s installed right to not cause any problems in the future. And while many people may think replacing a roof is easy, it really isn’t.

Here are just a few of the complexities you can encounter:

  • The height & pitch of the roof can require special safety equipment.
  • The underlayment is critical, but often done incorrectly.
  • Do you know what drip edge is for?
  • How do you prevent ice dams from causing roof leaks?
  • Unless installed by a licensed professional, most shingle warranties are voided.

Instead, you should hire a professional whose whole job is to replace roofing. Not only will they assess the roof before replacement, but they will also have all the suitable materials and tools for the job, as well as the much-needed experience in construction-related safety issues. A professional roofing company would also have warranties that can save you money in case something goes wrong.

Electrical Repairs

Repairing the electrical system of a home is another dangerous task to DIY.

In your house flipping journey, you might run into older homes with outdated or broken electrical systems. When that happens, you’ll want to spend extra on hiring a professional who has the training and experience to work with electrical currents—especially because they can be deadly when mishandled.

Feel free to install new light bulbs in the home, or to change light fixtures, plugs and switches if you’re a handy person, but anything more complicated than that should be handled by a licensed electrician. Here are the common issues often found in older homes that signal it’s time to call an electrician:

  • Replace electrical panels
  • Replace an exterior riser or the main feed from meter to panel
  • Messing with meters
  • Run underground electrical lines
  • Install a new circuit to an electrical panel

Plumbing Fixes

While improperly installed plumbing fixes aren’t as dangerous as electrical systems, they can seriously set your budget back and eat into your flipping profit. DIY-ing a simple leak might save you a couple of bucks, but if it escalates into a flood, that’s thousands of dollars instantly added to your expenditures. 

Beyond fixing a slightly clogged drain or replacing a new faucet, extensive plumbing repairs and maintenance are best left to the professionals. Here are some plumbing fixes that a professional plumber should do:

  • Replacing underground sewer or water lines
  • Replacing corroded stack or main supply lines
  • Replacing or repairing water heaters, sump pumps, and worn down or burst pipes
  • Running new drain lines, unless you know the exact pitch required by code

Drywall Mudding 

Drywall mudding is more artistic than people think, so it’s tough for non-professionals to do well. You can hang drywall yourself, because unless you totally butcher it it’s fairly uncomplicated to hang, but doing the taping and mudding takes an artistic touch.

Plus, even if you do manage to do your own mudding, it definitely will not be as seamless or aesthetically pleasing as work by a professional company. Ugly drywall is a serious eyesore which could turn buyers off from an otherwise beautiful house, so leave it to the pros.

Structural Repairs

We’ve all seen that part on the DIY home improvement show when the clueless flipper bashes through a load-bearing wall and almost caves the whole house in. 

Don’t be that guy. Structural repairs are one of those things which even pro flippers hire contractors for, because the cost of making a mistake is so high. Stay away from all structural work as a new flipper, including:

  • Bowing walls
  • Cracked floor joists
  • Bowed roof or ceiling
  • Removing walls for an open floor plan (are they load-bearing?)

Fixing or Replacing Heating Systems

Installing the wrong efficiency furnace or replacing with one that’s mismatched with the exhaust system could be fatal, literally.  For an 80% efficiency furnace, you use a particular exhaust, but if it’s 90%+, it’s a totally different exhaust system, which is not compatible with 80%-efficient systems. If someone gets poisoned with carbon monoxide in a home where you worked on the furnace, you’re liable.

The same applies with duct work. There are equations which experts use to calculate the type of ducting required, based on the size of the house, furnace type, distance from furnace, etc. Get it wrong and this could lead to a house that’s not heated well and puts more strain on the furnace, so it wears out faster.

Conclusion

Know your limitations, and you will save thousands of dollars – not to mention headaches! Even if you’re a crafty person who loves to learn new things, there are certain cost-cutting measures you want to avoid when it comes to flipping a home.

So, the next time you want to replace the roof, repair the electric system, fix the plumbing, or install new gutters in the home you’re flipping—grab your phone instead to protect your flipping profit as much as possible.

Image Courtesy of Suntorn Somtong