Fixing and flipping is an advanced strategy. If you are just starting out and trying to decide if flipping is right for you, I would recommend you do a couple of normal, long-term rentals first. Do some minor repairs to those properties.
Then, as you gain experience and confidence and start to meet some sub-trades (i.e. plumbers, electricians, painters etc.), you can focus strictly on flips if you wish. If you are dead set on starting with flips, please, start small so that your potential downside is minimized. There are lots of ways to lose money when you flip.
I would recommend having a mentor that can guide you through your first few jobs; plus don’t do any deeply flawed renos (really nasty mold, asbestos, foundation issues, or grow ops) until you have a few ‘lipstick and rouge’ jobs under your belt.
Finally, I would also recommend not doing a full-blown renovation in an apartment building until you have a) owned an apartment building as a rental; and, b) renovated a few single family homes or smaller buildings first. An apartment building as your first flip is a big mountain to climb.
In terms of financing, you shouldn’t do any 100% leveraged projects until you have 10 or 12 regular jobs under your belt. (I am not talking about joint ventures here; I am talking about where you borrow all of the money in a ‘Buy Real Estate With No Money Down Deal’.)
If you are going to be renovating property that is not in the same city/area where you live, please make sure you have a few normal renos under your belt first. Renovating from a distance can be very difficult. You need to be there a lot to oversee things.
I own several rental properties that are not in the same city where I live. One group of buildings is two-and-a-half hours southeast of me and the second group of buildings is two hours northwest. Both can be driven to, but it is a bit of a pain.
I wanted to update/upgrade these rental units, but not do anything major like knocking down walls, etc., just some simple “lipstick and rouge,” such as new flooring, paint, and some newer (not new) appliances. I thought, This is something my management company does every time a tenant moves out if there is any damage, so they should be able to handle this without me. Well, that is both true and untrue.
Yes, they could do it, but for some reason in both locations, they were not able to do it with any level of quickness. Unless I was there to oversee everything, things just didn’t get done as quickly. This is most often the case. Plus they spent more money than I would have.
If you insist on having a management company do your renos in a distant locale, make sure you add on a lot to both the dollar budget and the time schedule. The same thing happens when you go on vacation while you are doing a reno in your own town. If you are not physically there, your trades will do stuff but not nearly as quickly as when you are looking over their shoulder.
Another question I get asked by aspiring new flippers is: what should I do first, find my trades, find a property or find money partners. My favorite answer is ‘Yes’. Unfortunately, you really do have to work on all of these at the same time. A lot of people when they just start out want to find their trades first so that when they do find a property they can get an accurate quote quickly. Realistically though until you have a real job to quote you won’t get very accurate estimates from tradespeople.
Also until you find a property with real potential you won’t know for sure if your potential money partners are really in or not. That would lead us to believe that the property is the starting point. Well, you can find a property and then be left scrambling to get realistic quotes on renovations and money to buy the property.
So work on everything bit by bit all at the same time so that when you do find a good property a few calls to those trades and money partners that you have already contacted will move things along quicker.
The key point is not to get stuck worrying about finding trades, or setting up corporations or designing business cards and websites or analyzing potential purchases to the point where you never make offers or actually pull the trigger. That is called ‘analysis / paralysis’.
When it comes to getting started with fix and flips, Nike had it right- Just Do It. Get started. Be active. You will make mistakes when you first start out. Just protect your downside as best you can and keep those first deals small. You can always get bigger after.
Read more about this in Comparing Real Estate Strategies.