Establishing accurate projections is an integral component to flipping houses for profit. If you become too confident with your projections or fail to run accurate numbers, then you risk not making a profit when the home is ultimately sold.
I really cannot overemphasize how important accurate projections are to my house flipping business, and I urge you to consider the impact that projections can have on your own house flipping business.
So without sounding too repetitive here, absolutely pay close attention to your projections-in particular pay close attention to the amount of time you are projecting to hold onto a certain property.
This is an essential variable to include in your overall cost analysis.
Occasionally I will hear about folks who claim they are flipping houses in 3 months (sometimes less!) and really flying through properties. It goes without saying that this would be an awesome situation to find yourself in.
Yet how truthful are these claims and how feasible would it be for you to flip a house in 3 months or less?
Well lets have a look...
The Nitty-Gritty of House Flipping Projections
Lets' imagine for a moment that you have just closed on a property that you intend to fix and flip. Lets' assume that you already have a reliable and proficient general contractor lined up to begin work immediately on the property (obviously ideal).
So far your chips are in order and despite needing a lot of rehab work, you project to flip and sell this property in 3 months. Gotta love the enthusiasm!
Here's the nitty-gritty of some of the key reasons why I believe a 3 month house flip for most people is just a bit too aggressive:
- Not enough wiggle room in the rehab process
By "wiggle room" I mean time allotted for unexpected repairs, and overall just some time built into your projections to handle things you may not have forecast. A lot goes into rehabbing a home and discovering after the fact that you will have to deal with wetland zoning (just one example) can really add time to the house flipping process.
The amount of time spent rehabbing a house is, as much as I hate to admit, often times out of your control. We spend a lot of time here on the blog talking about assembling a killer team of contractors, lawyers, professionals etc. Yet even with the best team unexpected things that are completely out of your control can still happen-which can require timelines to be adjusted and projects to be started later than planned.
I have discovered through trial and error that it is not uncommon for the scope of work to increase throughout the project. It is certainly important to remember that this could happen when planning out your house flip timeline.
I'm fortunate to have assembled an awesome house flipping team of true professionals and experts. Even so I usually project a 4-6 week rehab process just to be safe.
Check out one of my latest blog posts, The Magic Formula for How to Flip a House for Profit for more in-depth information about rehab costs and all the variables you should consider factoring into your projections.
- Banks can be tricky to work with
Another ideal scenario to find yourself in is listing a property immediately after holding an open house and then selling it the next day. This would be pretty awesome and believe me it is absolutely possible! However I think it would be irresponsible to rely on this occurring and therefore I would not recommend factoring a quick turnaround like this into your projections.
Instead understand that banks often times move slowly. Simple stuff like faxing over the correct documents, obtaining signatures etc. can really bog down the process.
You may be ready to close on the property in 3 months, but the reality of the situation is that you have to work with the bank, their policies and their procedures. Again there are some variables in the house flipping business that are unfortunately out of your control.
Therefore my personal recommendation to you is to...
Construct a house flipping timeline that ensures profitability - even if you hold onto the property longer than you wanted to
I would recommend projecting 6 months but still shooting for 3 months. In addition, be sure to run your numbers if you had to hold onto the property for 9 months and even 12 months.
Seriously consider what your holding costs would be if you were not able to sell the house 6 months, 9 months and 1 year after purchasing the property.
Make sure that you will still earn a profit on the deal if you are not able to flip the house as soon as you'd like. At the least make sure that you will break even.
Doing so will help ensure you against a loss and assure you of a long and profitably house flipping career.
See you at the top!