Fix and flip shows present a skewed reality. There is a defined formula that’s followed throughout each episode. Every moment of the show presents the best experience of working on a fix and flip without including much of the hard work that happens behind the scenes. By the end of the 30 minutes or 1 hour, you see an impressive home that looks like it cost way more than the actual budget.
LendingHome’s Construction and Feasibility department sees hundreds of real fix and flip projects every year so they can provide some insight into the differences between these shows and real-life fix and flip professionals. Don’t think you can simply start a fix and flip business and be as instantly successful as the people you watch.
1. Where’s the money come from?
The limited runtime doesn’t let the show go into funding. On most episodes, the show will state the amount the property costs and the budget, but will not discuss where the money originated.
This could mean that the production company is supplying a part of the budget in exchange for recording the show. In other cases, fund could be coming from private lenders or a rotating line of personal funds from the fix and flippers. Most fix and flippers don’t have mountains of cash and rotate through bridge loans and property sales to fund their business.
The lesson to take away is that it’s rarely as simple as finding a property and buying it right after a commercial break. Loans for fix and flips offer the funds for professionals to buy, renovate, and sell property. Loans are normally a part of the process, something that these shows leave out.
2. Where’s the property history?
One of the most important things with fix and flips is property information. Knowing property information goes beyond a statement of when a house was built and the square foot living space. It’s important to know as much as possible. Show walkthroughs highlight specific areas, mainly the common living areas, kitchen, and bathrooms.
What isn’t it showing? Any place that isn’t exciting for viewers. The crawl space under a house would only be interesting if there was some foundation problem. Attics are shown when some repair is needed, but otherwise are usually ignored.
If you’re buying a property, there is a lot more information that you need to know, like comparables, relative home sale prices, and market health of the area. This information supplies the whole investment potential of a property. Just because you buy and repair a house doesn’t mean the market is strong enough to support selling it at a profit.
3. General contractors know more than you (in the beginning)
With each show, the hosts work with a construction team during the renovation or rehab section of the show. Usually these workers are never highlighted, the company isn’t directly revealed, and the screen time is cut to a few B-roll shots under a voiceover.
But when a person or company is highlighted, you must realize that you’re looking at sponsored placement of work. This means that the contractor came in through a network deal to perform work on screen. For a contractor to agree to lowering the cost or even performing the work for free would require a big deal in the episode for marketing.
If you’ve recently started to fix and flip and plan to work with a general contractor, the most important thing to do is take multiple bids. Never tell the contractor your budget because they’ll match it to get the most money possible. As you get bids for your project, experienced contractors should all submit bids around the same price. If you see someone who is underbidding by a large amount, don’t trust it.
4. Where are the contracts?
Signing contracts might only be interesting for the people involved, but it gives a semblance of order. In these shows, it’s a big deal to get the keys, but there’s rarely any mention that paperwork exists. These shows make it seem like being a fix and flipper takes little effort outside of getting a property and renovating it.
When you work with a general contractor, you should have a contract with them. When they submit their bid, it should have a breakdown of the work and cost. At the end of their work, you should review a punch list.
When you hire your contractor, the contract should include a point stating they can’t work any other jobs while working for you. For inexperienced flippers, leaving this out allows contractors to work different jobs at the same time leaving the possibility of delays or even work stoppage.
5. Creating conflict
When you watch these fix and flip or renovation shows, there’s always at least one problem. A cosmetic problem is easy to fix, but a major problem like a foundation issue, plumbing, or electrical could increase the budget depending on how large the problem. With careful editing, the problem is fixed after a commercial break.
After purchasing a property, there should be a full, in-depth walkthrough to locate and address any possible problems. You shouldn’t ever be surprised during the renovation or rehab if you planned the schedule well.
A few extra things to note
If you have any construction knowledge, it can take months to complete a renovation. Reality shows compress and edit all this work into a small segment of the entire show. You usually don’t even see much of the renovation, just highlights over a 10 minute segment.
Fix and flip shows are good enough to show the entire renovation budget, but there’s never a good breakdown of what different projects cost. In some cases, you might get a price for a material, like flooring, but you don’t get any information about how much to renovate the bathroom cost including materials and labor. This information is very important for your budget.
If you’re a beginner at fix and flips, the best thing you can do is educate yourself as much as possible. You should definitely have knowledge about home building, permits, and general contracting. It doesn’t mean you’re need to be an expert, but having familiarity with processes and procedures will definitely help.
As you gain more experience, you’ll be able to spot problems and be able to plan accordingly with more confidence. Remember, fix and flips shows are fun to watch but they’re only showing you the “best” parts of the process.
Disclaimer: The above is provided for informational purposes only and should not be considered tax, savings, financial, or legal advice. Please consult your tax advisor. All calculations and information shown here are for illustrative purposes only. All third parties listed above are for demonstration purposes only and are not affiliated with LendingHome. All views and opinions expressed in this post belong to the individuals referenced. NMLS ID: 1125207 Terms, Privacy & Disclosures. Copyright LendingHome Corporation 2019.