Flipping Property Forces Real Estate Investors to Wear Four Hats at Once

A property owner usually hire a property manager and a developer will contract with a project director. A property flipper wears multiple hats at once, acting as scout, financial analyst, contractors' manager and sales consultant, and all within the time it takes most people to learn the responsibilities of one position (one week). Investors who figure out which role to be in and when will outlast other investors by many projects.

The First Hat: Flipping Property Starts With Real Estate Investors Playing Market Scout

A flipper must determine, prior to undertaking any renovation, what property is deserving of a transformation and a reset of the finished product. This must be the job of those involved in wholesaling, auctions, and the MLS: They are not passive investors, who leave this task to others. The profit for the project must be calculated, before any trades are booked.

Neighborhoods and their patterns are far more important than overall trends. Even in what looks like a rising suburb, someone may be living in a street that is lagging behind similar sales. That's where the scout comes in. The greater the mistake made by being too high in one role, the more unfixable by being too low in others.

The scouting role, unlike all the other four roles, is non-renewable: mistakes in this role cannot be fixed through renovation. All other roles must contend with the risks they introduce when making decisions in scouting.

The Second Hat: Flipping Property Turns Real Estate Investors Into Their Own Financial Planner

Once this is under control, then everything hinges on this–budgeting, contractor estimating, estimating permit costs, securing financing. Once the demolition begins, the expenses are cut in stone. The scope of the renovation must be priced for what locals are willing to pay, not for what you would like to do, and those figures must be known before demolition begins.

The third element that creates complication is the funding. A bridging loan, construction loan and regular mortgage are all applicable at different times during the same project. New to property investors may naturally gravitate towards a mortgage as they are comfortable with this product, rather than the more appropriate construction loan. Planning delays need to be factored in, with council approvals that take three weeks longer than expected changing the entire holding cost scenario before the demolition can commence.

How the position is screwed up: A flipper simply views the budgets as one big pot of money and moves right into hiring. How the position should be done: All of the various line items, acquisition, renovation, financing, and holding, are costed out independently before the first contractor gets hired.

The Third Hat: Flipping Property Turns Real Estate Investors Into Contractor Managers Overnight

This person is often overlooked by new flippers. The chore of juggling and overseeing several trades at the same time is assigned to just one person. Also, the person is charged with remembering the order that the trades are supposed to work in, and verifying if the structure has been completed to current market standards defined by buyers. This person probably does not have formal construction management training.

Timelines are immediately impacted by the extent of renovation, and the pace at which permits are approved, each of which are susceptible to fluctuations. It does little good to finish a trade early if the permitting for the next step has not yet been approved; conversely, it does not matter that a permit has been approved if the scheduled trade is still working on some other project down the street. An astute real estate investor quickly recognizes that the job is not merely to effectively caretake one relationship but instead, to oversee shifts between many relationships that are only occasionally coordinated.

The Fourth Hat: Real Estate Investors Flipping Property Finish as Sales Strategists

A real estate project isn't finished when the last trade leaves the site. There is a vital step in the chain – listing the finished product. This requires a local buyer-specific staging, and the selling price must fit within the bounds of the three roles. An exquisitely renovated property can incur a big hit to its profits as easily at this final step if the listing isn't properly priced and marketed as it can at the beginning if the purchase price is unwise.

This requires an understanding of the particular set of potential buyers the finished property will appeal to, which is rarely the same as the investor's tastes. Final responsibilities include staging, listing date, and set a reasonable asking price against the market sales. It should be mentioned that most property flippers have little official training in this role, but it is the end to which the previous role are both paid for and applied for.

When Real Estate Investors Choose Not to Wear Any of These Hats

Not every real estate investor wants to participate in all four. More money is flowing into property flipping through syndicated investments. In these deals, a sponsor takes care of sourcing, construction, and sales from start to finish. These deals tend to have low investment minimums at $10,000, with pay-outs coming as a lump sum around 30 days after a project is completed, which is normally within an eight to fourteen month window.

This allows the investor not to assume any of the four roles and simply just have exposure to the capital. Though not necessarily the same thing, this is an indirect way to have some exposure to real estate investing in property flipping, without having to be responsible for managing the property or the listing. This is a fundamentally different endeavor from flipping a property directly, although they are both on the spectrum.

The real estate investors who personally assume all four of the roles are essentially managing an operating business.

The investor who chooses the syndicated method is simply making a passive capital investment.

Wearing All Four Hats Well Is the Actual Skill in Flipping Property

Flipping property is a highly rewarding strategy for a real estate investor who is able to master four different roles in a single property, and in most cases, in one week. The role of scouter lays the foundation for the maximum profit that can be achieved. Financial analysis then uncovers if that profit will survive real expenses.

Contractor procurement delivers the renovation within time.

And the sales strategy brings the finished product into the financial realm defined by the three previous roles.

Real estate investors that adopt flipping property as a growth strategy often have a role where they are strong, and ones where they are weak. Usually, that weakness is what's eating into the profit margin of the other three roles. Try integrating a system that can be combine all four roles at once. Use FlipSync IQ free for your next project to manage property flipping the way it really works, rather than as four separate duties.