You can make big bucks flipping, yet you can also lose money. Getting educated and experienced can help you avoid costly mistakes… and you can watch your money grow instead of going down the drain. Here are my 7 tips to keep you from losing money when flipping property:
Tip 1: Accounting
While accounting might not be what attracted you to flipping property, keeping records current and knowing what to look for is every bit as important as knowing how to fix up property.
Accounting is nothing more than systems that help you track revenue and expenses, be prepared to files taxes, watch your money, and see how much you are really making. You can hire an accountant or bookkeeper to keep your records or get software like Quickbooks and do this yourself. Either way, start your system before you start your business. You want to track every expense.
Enter every transaction daily. If you get behind on keeping your books you will pay a heavy price to catch them up. And in order to know how much money you are making your books must be current.
The better you understand your accounting system, the easier time you will have determining how your business is performing. With up to the minute Profit/Loss statements and Balance sheets you can make sound decisions, get loans when needed, and attract investors.
Tip 2: Taxes
As a business owner and a property owner you will pay taxes each year. When property is in your name, you’ll be liable for personal income tax or if in a corporate name; corporate income tax for the period of ownership. Whether you, an assistant or bookkeeper maintain your
records, also have an accountant or tax planner help you figure out the best strategies to reduce your tax liability every year.
Tip 3: Money Moves Fast, Learn to Watch It
The phrase ‘keep your eye on the ball’ comes from baseball and pitchers throw the ball fast. If you blink you will get a strike. In the flipping business money moves fast and with today’s technology of debit cards, wire transfers, Paypal, automatic payments, and check scanning your money moves quickly. If you are not watching these transactions your money can move quickly away from you.
One mistake could cost you hundreds and even thousands of dollars. Missing an insurance payment, a utility bill, taxes, credit payments, or bouncing checks could cost you in losses, penalties, fines, and interest, and damage your credit. Keep your eye on the ball by reviewing transactions daily.
Tip 4: Look For Ways to Grow Profit
While making more money flipping a house seems to imply selling at a higher price, there are many other ways to grow profit. Your property will usually only sell for what the market will bear. And in some instances you might want a quick sale and offer a lower price so simply always selling for more is not practical.
What else you can do to grow profit:
- Learn exactly which renovation investments payoff in your market and how much you will make from each one on every project.
- Learn to manage time. When you flip a property, time is against you. You want to get in, make improvements and get out and put the house back on the market as fast as possible in most all cases.
- Learn what actions help sell property faster and for more money. Listing with an agent and getting in the MLS, having open houses, advertising, using social media, and putting out flyers can all help you move your property.
- Learn how to negotiate win/win deals to your advantage.
Tip 5: Keep an Eye on Expenses
Watching your money go out is as important as watching it come in. No matter how much you make you will be most affected by how much you keep!
You could be making money hand over fist but if it’s slipping out of your grasp faster than its coming in you will go out of business. Cash flow is the life of business. Expenses are like leaks in your system and must be controlled. Be vigilant about looking for areas where you can make improvements and cut costs.
Besides the costs of materials and labor to rehab a house, your expenses include:
- Vehicle and fuel costs
- Time spent managing a flip
- Office management
- Record keeping
- Sales commissions
- Phone Costs
- Legal Fees
Set aside time once a month to review all reoccurring expenses and be ruthless about cutting them to the bone. Be forced into taking on any overhead by growth. Never add overhead because you want to grow. For example do not hire an office assistant or rent office space because you want more business.
6. Build a Reserve Fund
In business remember; if you can write a check for it, it’s not a problem. So many things including emergencies can be solved with money. Having your own money saves you money. With a reserve fund you:
- Do not have to put things on credit cards or borrow money.
- Can make things happen immediately without delays.
- Can take advantage of limited time sales, discounts, or deals on materials and appliances or buy in bulk.
If a contractor tells you they have uncovered a problem that is going to cost you another three thousand dollars, you won’t have to stop work while you look for the money. And if you spot a hot property deal that requires earnest money, you will be ready to take immediate advantage.
When you are starting out in this business you might not have a reserve fund. Build one by setting aside ten percent of profits from every deal. This can add up quickly after 10 or so good deals. Keep your cash in a liquid (easily attainable) form such as a Money Market or savings account. A cash reserve is power that solves problems fast and brings you more opportunities.
7. Keep Looking for Ways to Improve
There are constantly new ideas, strategies, marketing techniques, lending products, business tools and more being introduced that can cut expenses and improve how you do business.
Take a few hours each month to review what products and tools are available and invest in education. Education can be reading a book, attending a webinar or enrolling in a local course.
Technology is always evolving and new products and services are making others forever obsolete. Make sure you are using the most efficient and economical tools for your business