5 Ways To Keep Your House Flip From Becoming A Flop
By Paul Esajian on December 21, 2018
In the world of real estate investing things often don’t go the way you plan. In fact, having a project free of any trouble is the exception rather than the norm. How you handle the unexpected often determines your success or failure. This is especially the case if you focus on flips and rehabs.
As Mike Tyson famously said, “everyone has a plan until they get punched in the mouth.” You can spend days, even weeks, formulating a plan with your rehab property and at the drop of a hat, everything changes. Your ability to roll with the punches and adapt to your new normal will tell the tale of your project. Don’t wait for a perfect solution that may never come. Realize what you are facing and quickly react to the problem. Here are five tips to help deal with a crisis in the middle of your rehab project.
- Identify the problem. When dealing with an unexpected issue, the first step is to identify the problem. It is human nature to avoid uncomfortable situations at almost all cost. You may know that you have a major issue on your hands, but instead of facing it you hold out hope as long as possible. Instead of dancing around the problem, dig into it and discover the real cause. You will have a tough time moving forward without knowing exactly what you are facing. The problem may be much bigger than you anticipated but you only want to change gears once. Now is the time to take a step back and realize exactly what you are facing, without sugar coating the problem. Whatever the issue is, you don’t want to look back in a few weeks and realize that you made the problem worse. Identify exactly what you are facing before formulating an action plan.
- Huddle with your team. Being an investor means that you are the final decision maker. It is your project and ultimately you control what happens every step of the way. That being said, in the 24 hours after an unexpected problem pops up you should huddle with your team and gather as much information as possible. Listen to the suggestions and advice that is given with an unbiased perspective. This doesn’t mean you have to act on the first idea you hear, but you should hear as many different options and scenarios as possible. Depending on the problem, you may be forced to choose between the lesser of two scenarios. These are always difficult decisions to make, but you never want to act without knowing what you are getting into. By taking twenty-four hours to huddle with your team and hear all options you should have enough information to make a decision you can live with. This is why you have a strong team around you and their contributions at this point can be invaluable. Listen to everything, but only act on your convictions.
- Play out bcs/wcs. When facing an unexpected issue, it is best to play out the problem all the way in either direction. What are the best and worst case scenarios for whatever action you chose? Sure, these may be extreme and even a little unlikely, but you should know that the possibility exists. Many times, by playing out the worst case you will see the potential risks in a scenario and alter your plan accordingly. On the flip side, your best case may need some things to break right, but you can adjust your budget, timeframe and your blueprint to get there.
- Evaluate & act. Generally speaking, the longer you sit on a problem the worse it becomes. It can feel like a gut punch learning you have an issue with the foundation or the work you just completed is not up to code. You will run through the gamut of emotions from shock to disappointment to anger. After you and your team run through all your options you need to act. Take a stand, chose a path and go with it. As long as you know exactly what you are getting into, you need to be confident with whatever you choose. It is not uncommon for a new rehabber to wait days before reacting to a problem. Every day you wait not only costs you money but can make the problem worse. Dealing with rehab issues is a lot like poker, in that you may never know what the right outcome, but you must take a leap of faith. Once you choose a new path you can make it your own and own it.
- Cost/benefit. If you watch any one of the many house flipping shows on TV, you will realize that these types of unexpected problems happen on almost every deal. The big difference is that on TV, every problem almost always has a happy ending. In reality, not everything you do is going to work 100% of the time. Before finalizing anything, you need to weight the cost and potential benefit. Throwing money at a property does not guarantee profits. If the work does not match the market you could very easily lose your shirt on a given project. There are times when adding to your budget can open your property to a new set of comparables, but this isn’t always the case. Understand the potential end benefit before adding to your budget.
When and how you react to the unexpected on a rehab project is critical to your success. Accepting that will help you act instead of react when the inevitable problems come.