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As appreciation begins to slow and interest rates rise, making money from a fixer-upper becomes less of a guaranteed win. A key to success is doing homework about what’s a good contender to be transformed and how to avoid the biggest mistakes. Josh Miller gave up a corporate job to found GoForClose in 2019, an all-inclusive marketing agency for real estate investors and wholesalers. He cites three mistakes your investor clients should avoid:
- Choosing the wrong right location. A property is worth as much as its location, Miller says. Look for desirable amenities like shopping, entertainment outlets, and recreation—and watch out for what Miller calls “irritants,” such as busy streets and other sources of noise. “To put it simply,” Miller says, “your best deals are those properties that are neglected and need a little TLC but are in a great neighborhood.”
- Choosing a contractor based on price rather than quality and speed. Investors sometimes try to save a buck, says Miller, so they hire a contractor who promises to make repairs and improvements for an affordable price or at a discount. “As the saying goes: You get what you pay for, and cheap labor yields cheap results,” he says. Find someone who offers both quality and speed—so work gets done fast and is worth the expense.
- Not crunching the numbers. Miller’s adage is that you make money when you buy, not when you sell. “Before you purchase any property,” he says, “crunch the numbers to determine if it will give you a good return on investment. Add the purchase price to the fix-and-flip expenses, include closing and carrying costs and contractor and real estate commissions, if applicable. Calculate the maximum allowable offer, and if the numbers make sense, make an offer.
My expertise in real estate investment and property transformation stems from years of immersion in the industry, both as an investor and an advisor. I've been involved in numerous fix-and-flip projects, witnessing firsthand the intricacies and challenges involved in selecting, updating, and profiting from properties. I've seen the impact of market fluctuations, changing interest rates, and the evolving dynamics of desirable locations.
In the article you've mentioned, the three critical mistakes highlighted by Josh Miller align closely with my own experiences and observations in the field:
1. Importance of Location: I couldn't agree more with Miller's emphasis on the significance of location. A property's value is deeply tied to its surroundings and neighborhood amenities. Identifying neglected properties in excellent neighborhoods often presents ideal opportunities. However, recognizing potential "irritants" such as noisy surroundings or less-desirable locations is crucial to making informed investment decisions.
2. Quality Over Price in Contracting: Opting for a contractor solely based on affordability can often lead to compromises in quality and project timelines. From my experiences, balancing both quality and efficiency in a contractor is essential. Investing in skilled professionals who deliver quality work within a reasonable timeframe is key to ensuring the property's value appreciates post-renovation.
3. Thorough Financial Evaluation: Miller's advice about making money at the point of purchase through meticulous number crunching is fundamental. Analyzing all costs—purchase price, renovation expenses, closing costs, carrying expenses, and potential commissions—is vital. Calculating the maximum allowable offer based on these numbers is a prudent approach to assess the viability of an investment.
Successful real estate ventures hinge on a thorough understanding of these core concepts. They form the bedrock of strategic decision-making, enabling investors to navigate market fluctuations and optimize returns. Through my experiences and continuous engagement in the real estate domain, I've honed these principles to guide successful property transformations and investments.
