If you are an active rehabber, the last sixty days has been a whirlwind, I'm sure. In my nine years of this business (over 1,000 houses), I have never seen anything like it. There have been more people trying to buy and flip houses than I have seen before. Our last five flips have a COLLECTIVE days on the market of 38! That means we are averaging about 7.5 DOM per house! It has been a nice ride, but it seems to have come to an abrupt halt now that the first time home buyer tax credit has expired. You can still take advantage of the seasoning waiver, but you will have to be on your A game. I am going to devote the next several columns to trying to help you be more profitable with your next rehab.
#1 – Buy the right house.
Don't buy a house because it is a “good deal”. Make sure it is the RIGHT deal. Watch for issues like busy streets, commercial properties, and design flaws that will limit the buyers that are willing to live in the home. These are called white elephant issues. This is the number one way to loose money on a house. It can cause a property to sell for 10% – 20% less than projected. If you do the math, the average profit ratio is 12% – 15%. So, if you have to discount that much, you might be fighting a loosing battle. Make sure you have enough in the spread to carry the property for six months. This should give you ample time to have the right buyer come along. This is a very important decision before you buy a house. If you get cashed strapped, you will become a motivated seller. Once you cross that line, you are almost sure to miss your profit goals.