3 Reasons You Can't Find Profitable Fix and Flip Deals

May 23rd, 2024

At The Hard Money Co., we have investors that submit applications once a month and have never funded a loan. They have the drive, they have the ability, but what they don’t have is the deal. So, what’s the hold up? For most of them, they’ve put in the work to put their strategy together. They’ve found contractors and a strong scope of work. They’ve coordinated with their financing partners at The Hard Money Co. They see the powerful wealth creation tool that is real estate investing, but they can’t close on that first property that will be the springboard for their real estate career.

The reasons for their failure to launch are all over the place, but we see some patterns when it comes to first time investors who can’t close.

Poor Property Valuation

The number one reason why a good borrower fails to close on a deal is poor property valuations and bad deal metrics. This most often comes in the form of hidden costs and overly optimistic market considerations. Experienced investors can easily spot all of the costs associated with an investment property. Fees, insurance, renovations, commissions, and more all eat into that profitability. New borrowers just don’t have the hard-won experience to identify all of these considerations. They submit a deal and see a 30% margin that barely gets to break even by the time we’ve finished underwriting it.

They also tend to view every 50/50 outcome as coming out in their favor. If they see two comparable properties, one sold for $200k and another for $250k, they will err on the higher value every single time. Experienced investors know to be conservative at every turn, knowing that when it does go their way it will be extremely profitable, but also that it won’t leave them broke when it doesn’t.

Put together a strong property valuation model and pro forma early and be rigorous in your attempts to find a property that works. The more you practice, even before doing your first flip, the better off you will be.

The Hard Money Co.

Using hard money loans allows real estate investors to maximize leverage when purchasing a property and close within just a few days, all while freeing up their own cash for other uses.

A Bad Network

The second most common reason why people fail to find good deals is their weak network. If all of their opportunities are sourced from MLS sites or similar platforms, they miss out on potential deals that others aren’t aware of. To change this, join your local REIA, treat a real estate agent to a coffee, and make yourself known so that when a good investment deal comes up, you’re the first person they think of.

Building a network doesn’t happen overnight, but there are significant steps you can take today to create a robust, high-performing network for the future. Start by sending out some emails and registering for the next investor meet-up. Take proactive steps that will positively impact your future and your portfolio.

Lack of Hustle

The final reason we see most commonly is a lack of hustle, and it’s not because people are lazy. Most would-be investors think that the hard work begins once they’ve acquired the property and are performing the flip. But the reality is that all of the money is made before pen ever hits paper on the closing documents. Your hustle in the deal search needs to match whatever effort you’re putting into the rehab. Are you driving neighborhoods looking for distressed assets? Are you calling vacant homeowners to see if they’re looking to sell? What are you doing to find deals before the rest of the world sees them?

Experienced investors know that the deal is won or lost in the search, but this doesn’t necessarily resonate with newbies. If you’re serious about this as a means to create wealth, give the process the energy it deserves starting now.

Conclusion

The good news is that these issues can be resolved before you submit your next application to The Hard Money Co. By improving your property valuation skills, building a strong network, and increasing your hustle, you can find that homerun deal. When you do, we’ll be your partner in getting to the closing table. Start taking these steps now, and you’ll be well on your way to a successful fix and flip investment.

3 Reasons You Can't Find Profitable Fix and Flip Deals