So far we’ve covered how to find a flip and how to finance your investment. In this blog we are going to cover how to set up your budget and timeline because after all, with such a large investment, time is money.
There are ton of ways to calculate your budget and lord knows people love to complicate this, but for me, it was simple. ARV (After Renovated Value) – Purchase Price = Initial Investment Outlay. Now this doesn’t take into consideration renovation costs, carrying costs, or profit. So I then take that Initial Investment Outlay – Cost of Renovations -Carrying Cost – Closing Expenses = Profit. Knowing there is going to be unknown costs, unforeseen issues, and upgrades in renovations, I have to make peace with that initial profit number and build my budget from there. If I have “room” based on my estimates I can choose the upgrades (hence the Fixer Upper scene where Joanna let’s you pick a patio or an upgraded master closet). Being in real estate I notice what jumps out to the buyer most and try to focus on those items. I am naturally curious so for me I love to build a budget, knock it down, and build again. I love to price shop, compare, and work with my contractor on creative ways to enhance design while also saving costs. It’s important to commit to this budget as early as possible so you can adhere to something while out doing selections. Trust me when you’re in the selections store it becomes too easy to upgrade or overspend.
Timeline is critical in real estate more than most realize. Yes, our area has low inventory, and the renovated homes go quicker, but if you go on market at the wrong time of year you can have huge swings in profit and your buyer pool shrinks. Obviously, a winter renovation project with a spring sale is ideal, but that is the funny thing about opportunity, you never know when it will come knocking. If you find a good investment at the wrong time of year, make sure you are using the lower priced comparable’s because we can see a 20% swing in price from winter to spring so you want to make sure you can hold the property longer, or sell for less if need be.
My last piece of advice for budget is to immerse yourself in all things home renovation and research. Familiarize yourself with the big box stores (Home Depot, Lowe’s, etc), as well as your wholesalers (Floor and Decor, Cabinet whole sale’s etc). This prep will really come in handy! Once you acquire the actual investment time will fly by so you won’t have time to compare subway tiles and floor stains. Also, start looking around for contractors, realtors, interior designers, other investors and build those relationships. Talk to them, take them for a drink and pick their brain. I love to hear about other people’s stories, their experience, and if possible learn from any mistakes they’ve made.