So you’ve decided you want to take on an investment property. But there’s still an equally large
decision left to be made, where you are going to do your first flip. The best approach to making
this decision is understanding the neighborhood for your potential project.
Consider what will add value to your property and things than you yourself would seek out as a
buyer. Is there a park nearby? Is it in close proximity to a school and what is the school district’s
reputation? Are there lots of shops and restaurants? What is the walk-ability score for the
neighborhood? And are there any upcoming developments in the area that could add value, or
on the contrary that could potentially decrease value?
Historic neighborhoods can be slightly more difficult to navigate as you may need to speak with
an expert in the area about what types of renovations are permitted. Other factors to consider
are flood zones as these could affect the resale. Or even close proximity to prisons and detention
facilities. Yes it’s a lot of research, but a little due diligence in this area can have a big pay off in
the end so crack a bottle of wine, put on your favorite lounge wear and get to searching!
While we’re sipping and searching, let’s consider what else we can cross off our list.
Homeowners Associations (HOAs) can play a massive role in renovations. It is extremely
important that you research and understand the bylaws and governing docs before you begin
your remodel. Some HOAs may be more relaxed while others may dictate what color the front
door can be or what type of windows can be installed.
So here comes my favorite part. Grab a pen and a notebook and let’s go through the house!
Make a list and get as detailed and precise as possibly. Take notes about what needs to go, what
could possibly stay, what repairs need to get done, and so on. For example, maybe the kitchen
tile has got to go (key lime tile from the 70’s no thanks) but the wood floors might be worth
saving to preserve some of the home’s original charm and help cut costs in the budget.
Don’t limit this list to the interior. Make sure to walk the exterior of the house as well. Curb
appeal is a big deal for a lot of buyers, and you’d be surprised what a little TLC to the patio in
the back can do for the buyer’s opinion of the home as well.
If you need a little extra guidance with this part of the process, you can refer to the list I’ve
included from the National Association of Realtors (NAR). This will help break down your
highest Return on Investment (ROI). I personally like properties with good bones as I’ve come
across foundation issues in the foothills with bentonite clay soil, which can cause foundations to
shift causing unevenness and cracks.
If you ever have questions about a home’s foundation, it’s best to go straight to a structural
engineer and let the professionals help you to take proper actions. This can be one of the most
serious and expensive issues to fix and could also lead to future issues, like further shifting of the
house. No bueno.
Now that I’ve said my peace on that, let’s refocus on the interior. Here are a few questions you
can use to help get you started:
● Floors – do they need to be replaced? Maybe just sanded?
● Paint, what rooms need it? What colors do you think would work in the space?
● Fireplace – what needs to be done to improve the aesthetic? Total replacement? White
wash the brick?
● Kitchen – What can stay and what can go? Think of cabinets and counter tops, appliances,
backsplash, lighting, etc.
● Layout – do we need to remove any walls to open up the floorplan? Consult with a
structural engineer to verify what walls are load bearing.
● Bathrooms – do the fixtures need to be replaced? What type of condition is the bathtub in
or shower tile?
Kitchens and bathrooms will be the most expensive repairs but well worth it. These are typically
what buyers look at most when purchasing.
Now we need to get into the nitty gritty and do our math. Grab your calculator and let’s get to it.
The best advice I can give you on this is to always overestimate. Take every single repair on your
list and speak with your contractor about each material and individual labor costs. There always
seems to be additional expenses not accounted for, and sometimes things come up later that you
couldn’t have seen coming, so set aside an additional 10% – 15% for a contingency budget.
Lastly, we need to consider the possible investment property and calculate all the fees associated
with purchasing. We’re talking closing costs, lender fees, loan interest rates and points, transfer
fees, HOA’s, taxes, utilities, insurance bank fees (you want to have a separate bank account for
your property). If you’re creating an LLC what costs could be affiliated with that?
You’re likely to come across a lot of these fees again at the closing table when you sell too.
Realtor fees, title fees, closing fees, HOA and tax fees, etc. Together, these fees are part of the
70% Rule. 15% for fees and 15% for profit = 30% total (-) estimated repairs, (-) wholesale price if
applicable. This will determine the purchase price of investment property.
Calculations are extremely important, as this can quickly become your achilles heel. Cheap
doesn’t necessarily mean a profit. If you’re feeling a little overwhelmed, there are some helpful
real estate fix and flip report tools that do the final calculations for you. Some are as simple as
uploading the MLS photo in the software, entering your numbers in, and it will give you a PDF
report of the property and profit. From there you can see if the investment property will fit your
Hopefully this will help start the process on your first flip, I’ve left you with a lot of research to
do, good luck!