Strategies to Turn Around a Failing Real Estate Flip

Turn around a failing real estate flip

If your real estate flip is failing, it's critical to reassess everything as early as possible. Turning around a failing real estate flip is possible, but a complete review of your market analysis, evaluation of the repair costs, projected sale price, evaluation of alternative exit strategies like renting the property, and seeking advice from other real estate professionals to identify the root cause of the problem and potential solutions is vital. It's important to be realistic about the facts so your solutions have the greatest chance to succeed in minimizing potential losses. Take a close look at:

• Overpaying for the property: Did you pay to much for the house? If you purchased at a price that left too little room for profit after repairs, it becomes very difficult to generate a profit. 

  
  

• Poor market analysis: Are you trying to sell a property that doesn't fit the current market demand in your area? Did you renovate with the wrong target buyer in mind? Did you under or over develop the property? Accurate market analysis is an extremely important factor in successful real estate flips.

  
  

• Unforeseen repair costs: Did unexpected issues arise during renovations that significantly increased your budget? Not evaluating the property in enough details can result in unforeseen costs, often times, many of these could have been avoided with better evaluation at the time of purchase.

  
  

• Overestimated after-repair value (ARV): Did you miscalculate what the property could sell for after repairs? Being sloppy or hopeful about the exit price is a huge problem. Going into a flip expecting to get a price, even at the top of the comps, is dangerous and careless. Realistic exit values create a much higher probability for success and leave room to exit more quickly and adapt to changing market conditions or unexpected costs.

  
  

• Poor marketing strategy: Are you not effectively reaching potential buyers with your marketing efforts? Having an effective exit plan is as important as every other detail. Relying exclusively on open houses or an MLS listing isn't enough. Are you staging the property? Are you using professional photography, videos, 3D walkthroughs, etc? If you're using a professional real estate agent, you'll want to vet them as well. What is their marketing plan? Are they local and are they experts in the local market and the type of property you're selling?

  
  

• Poor quality renovations: Did you cut corners on repairs and finishes? Low quality repair and finishes may appear like you're saving money, but they can also lead to a lower quality and less appealing product that doesn't bring buyers? 

Potential Solutions to Turn Around a Failing Real Estate Flip:

Turning around a failing project can be scary, but by being proactive, realistic and dealing with it head on it can be done. Some potential considerations:

• Reduce the asking price: You might lower your price to attract more buyers, especially if the market is slow. Every property can be sold, but remember that it's only worth what someone will pay for it. Being able to determine what that price is takes expertise and sometimes second opinions can be helpful.

  
  

• Reassess the market: Analyze current market trends and adjust your marketing strategy accordingly. Market analysis is something that evolves and changes. Your analysis at the time of purchase may not be accurate when you sell. Pros continuously evaluate the market and adapt their plan as needed.

  
  

• Consult a professional: Seek advice from professionals wherever you can. Experts such as local real estate agents, or experienced investors and contractors can be extremely valuable in identifying potential issues and solutions. 

  
  

• Consider alternative exit strategies: In a changing market environment, being able to adapt and pivot can avoid a project going off track.

  • Rent the property: If the market isn't conducive to selling, consider renting the property out for passive income until market conditions improve. 

  • Sell to another investor: Explore selling the property to another investor who may see potential in the property. 

  • Bring in an investor partner: An investment partner could provide the funds needed to exit or greater staying power to hold.

  
  

• Improve the property: If possible, make additional repairs or upgrades to enhance the property's appeal and value. It's a common mistake by inexperienced or poorly capitalized flippers to cut corners and costs at the end. The finishes are some of the most expensive part of the project, and ironically running short of money at that point causes many to be forced to use cheaper finishes which produces a less desirable product that can take longer to sell with less profit.

  
  

• Negotiate with creditors or create a workout: If you are facing financial pressure, try to negotiate payment plans or other terms with your lenders and creditors. Avoidance only makes problems worse. If you would like professional help, contact us.

It's Important to Remember:

• Be realistic about your situation and potential losses:

  Sometimes, the best option is to cut your losses and sell the property at a lower price than you initially anticipated. 

  
  

• Learn from your mistakes:

  Analyze what went wrong with the flip and use the experience to improve your future investment strategies. 

  
  

• Do your due diligence:

  Always thoroughly research a property before purchasing it to minimize risks of overpaying or unforeseen issues. 

  
  

• Don't be afraid to get advice or second options:

  A good plan is the foundation of a successful flip and a good plan requires good data. Using professionals and experts ensures that, so don't cut corners when developing your plan.

JB Properties can help evaluate and manage your project, whether failing or just getting started. Contact us now.