By Andrew Bang, Boomerang Capital Partners

As many of you already know, we lend to fix and flippers, and we also do or have done, plenty of projects on our own. All of which means we spend much of our days and nights thinking and talking about real estate. With all of the changes and issues going on in the market, we thought we’d collect and share some thoughts on things we are seeing right now. In compiling and reflecting on this list, it has seemed a bit like these are pretty basic, but as Michael Jordan reminded us: “Get the fundamentals down, and the level of everything you do will rise.” (Yes, this is a basketball quote, and yes, we are still bummed the Suns are out of the hunt).

Here are the six things we are seeing lately among flippers across the board that contribute to a winning game: 

Budget: Basically Useful

Speaking of basics, it really doesn’t get more basic than a budget, but it remains a top issue to save headaches and heartaches. And we have been reminded that the more specific a budget is (within reason), the easier it is to measure progress and variance. You can go overboard with too much detail (like how many screws you plan to use), but broad categories like “I’ll spend $40,000 on the kitchen” will not provide enough detail when it comes time to make decisions and order materials. What you’re looking for is balance: a well-researched budget with sufficient detail and completeness, including timing, that you then monitor and stick to.

And of course, don’t forget your permits. Thankfully, we are hearing fewer problems here. 

Team: Vet your players and then coach them

Just like in any title-winning team, the success of the game rests on the skill of the players. This holds true for the team you assemble to help you get the flipping done. Francisco Vallecillos, VP of Lending, points out, “Your team needs to be vetted and ready to go. Shopping for contractor services post-purchase can be costly, for both time and resources.” Then you, as the GM of this project, get backed into a bit of a corner and end up going with the fastest option, which in many cases is not the best priced or has other issues. This may also mean you resort to using a second or third choice, as the top pick is committed elsewhere (and the best service providers are still fully booked out a few months in advance). The same can be said for the realtor that will be selling your project upon completion and any of the subs or other service providers that you use. Putting time and effort into vetting your “players” before it’s crunch time will save you a mad scramble at the end.

Once that team is chosen, it needs monitoring and coaching. This simple factor is key to staying in front of problems and heading them off before they become real issues. Check-in with them on a regular basis to make sure everything is going to plan and that small issues do not become big issues.

Taking Advice from your _________. 

Yes, that space is left blank intentionally because, in various stories, it is filled in by “contractor,” “realtor,” or even “spouse or significant other,” any and all of which can be problematic.

Everyone has an opinion! When things don’t go to plan or are difficult, it is certainly natural to reach out for help and advice, but that usually is a mixed bag at best. Once the project is budgeted and ready to go, it’s frequently unhelpful to ask for opinions. Most of those ‘helpful’ suggestions are going to involve an upgrade of one sort or another. These can come from a well-intended but inexperienced friend walking the property with you or a self-interested contractor. You might hear things like: “This is a nice kitchen, but you really should do new cabinets,” or “You should open up this space.” You may also be tempted as you wander around a project and think, “A bit more landscaping might really make this place pop.” Remind yourself frequently: if it’s not in the plan, it’s not in the plan. Don’t take advice from armchair enthusiasts! 

Some time ago, we had a borrower that had a new girlfriend that was a realtor. At the end of one of his projects, she took it upon herself to blue tape the project to make it more ‘sellable,’ and when she was done, the property was covered in blue tape. For example, a refinished bathtub needed complete replacement, more can lights and landscaping plants, etc. The outcome was budget overruns because of unnecessary replacements and re-work, ruined subcontractor relationships, and an ex-girlfriend. That borrower learned his lesson and has a new girlfriend, and while she is also in the business, they don’t share ‘insights’ into one another’s projects (and have been together for a few years now).

Chasing the Next ‘New Thing’ vs. Home Court Advantage

When troubles come around, there is a strong temptation to throw out everything and do it some ‘easier’ way, like maybe finding homes in a new area, trying out a new concept, etc. While certainly all of these are good ideas, the flippers we see being successful are working harder in areas they already know. And no one yet has found anything easier elsewhere, but we have seen quite a few borrowers that were very good in Glendale or Peoria struggle chasing the redevelopment near Loop 303. Tadd Jones, VP of Lending, points out that in the event you expand or go to a new area, your crews and other support may not follow. And anyone who thought Queen Creek was going to be easy is now cursing as they sit in traffic trying to get in or out of there. 

There is something to be said about the home-court advantage. It’s not enough on its own, but it certainly helps, and if you can choose your court, you are more likely to win. And when you are the number one seed and your stadium is a mile high, it is a significant advantage. 

Overpricing: Stay in the Ballpark

I know we’re mixing analogies here, but in this case, the “ballpark” is where the most successful flips are sold. Pricing is certainly tricky right now, and no wonder people are having issues. Certainly, the return of spring and the seasonal uptick in both prices and volumes have helped stabilize prices and increased volumes, but it is nowhere near back to normal, let alone the levels of last year at this time.

It may be useful to remember that the way most flippers make money is not by holding out for the absolute highest price on a single project but rather by doing more projects. Andrew Bang, VP of Lending, shares that he was going through the numbers at the end of a project with a seasoned borrower, and it was clear that the project was going to result in a loss. As the borrower optimistically shared: “To win the game, you gotta stay in the game.” this is a good insight, and we are happy to report that his next project is progressing profitably.

And yes: we are looking forward to the Diamondbacks!