Without a written real estate policy, you make the rules when the deal is in front of you. That is when you are least objective. A one-page policy establishes the rules upfront in simple numbers, so each offer is subjected to the same standard.
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This is the policy. There are eight Clauses. For each they quote the policy at the top in a quote block and below clarify the evidence around it. The parameters are examples so swap in your own. These sources were Rocket Mortgage, HGTV’s Egypt Sherrod, Planner5d, Gatsby Investment, HTAG and Morningstar.
Why Write a Real Estate Strategy Down
These two make the same point in contrasting ways. According to Morningstar, an investment policy statement is “the written guidelines of your plan.” Morningstar goes on to say that writing down your plan “greatly increases the chance that you’ll adhere to it,” and that the document acts as a “speed bump” before impulsive decision.
HTAG’s property investment brief advises to have a standard operating procedure and includes a note of bias. Any brief written when you already have a preferred shortlist naturally creates justification for that shortlist. Write the brief before you begin by screening a property.
In short, a real estate strategy is not a state of mind. It’s a checklist.
Clause One: The Box for Flipping Property
Clause: I buy and resell thoroughly sound houses, located in better streets, within one price range, in neighborhoods where I can identify ten recent sales.
The first “don’t” according to Sherrod is to buy the most-preferred house on the street. Her “do” is to look at rundown homes on up-and-coming blocks with other upgrades occurring, new shops and restaurants opening, and the city adding sidewalks or repaving roads.
Yes, Planner5d is for the fairerer sketch the same. Of houses that are misprice-placed to sell because they’re unwanted or selling urgently, choose houses that need only superficial alterations. HTAG’s two filters are a budget cap plus the price range you buy in and the factors that eliminate a market, one employers a dominant feature.
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If you can’t list ten sales, that is just a guess at your ARV.
Clause Two: The Price Rule Runs Twice in Flipping Property
Rule: I run the maximum offer on the base case and on the worst case. I never offer above the worst case.
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Rocket Mortgage doesn’t suggest that the 70% rule is a sure thing. It “can point you in the direction of potential deals, but it shouldn’t be your final determinant.” The rule overlooks costs associated with the loan, local taxes, and the market.
Rocket offers worst case template. ARV of $300,000 could be $280,000, and repair cost of $15,000 could be $35,000. Do the formula from both angles.
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Case | ARV | Repairs | 70% rule maximum offer |
Base | $300,000 | $15,000 | $195,000 |
Worst | $280,000 | $35,000 | $161,000 |
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The difference between the worst version and the base case – 17.4% of the base offer. Momentum strategy: a policy that proposes $195,000 and prays for the base case market. A policy that proposes a number no greater than $161,000 survives the bad market.
Clause Three: Evidence Before Estimates in Flipping Property
Rule: ARV is based on sale prices. Someone else verifies it. A contractor previews the house before I make an offer.
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Rocket agrees with ARV and repair cost estimates being a bit of a shot in the dark and recommends having a realtor or home inspector give you their estimate as well. Sherrod’s second ‘do’ is having contractors walk through with you on the first tour so you can get their repair estimate early on.
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Australian flippers to work and extract sold prices from realestate.com.au or domain.com.au. RP Data can be lagging three months or more, obscuring a maturing market. Zillow performs the same service in the US.
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Memory estimates are a napkin math. A policy is a document.
Clause Four: The Skill Line
Rule: I do not do complex home repairs myself. All electrical, plumbing, and structural work is completed by licensed tradespeople.
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Sherrod keeps things simple with her DIY advice: paint, tile, landscape, walls (demolition), cabinets, old flooring removal. Other home projects, like electrical, plumbing, and structural work, are off limits as they can lead to water issues, fires, and lousy home inspections, she says. “My first investment property came with a roof accident. I had no business up on the roof,” she says.
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Planner5d distinguishes between cosmetic flips and remodeling projects that involve major plumbing or electrical work, or require a significant change to the structure of the property. The former has less risk. The latter is a bigger risk, but also offers a bigger potential payoff. Your policy needs to specify which you do, and when.
Clause Five: The Flipping Property Clock and the Kill Switch
A BUNCH OF RULES – I think 120 days. A 90 day mark to re-calculate. A 120 day mark to choose, take the cut or go into the switch.
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Sherrod’s target is 60 days, 30 for renovation and 30 to market and sell. Gatsby’s passive projects will take 8 to 14 months. Your policy should be between your target and worst case, and should set a decision date.
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Their figures may be hypothetical, but their sense is not. Planner5d says: “A quicker sale minimizes holding costs and increases net profit.” Rocket says: “Allowing delays should be in the budget. A date on paper makes it for you before the calendar makes it for you.”
Clause Six: Funding Limits in a Flipping Property Strategy
Rule: I carry the cheap/highest level of funding at the worst-case hold. I keep cash for the gap between base and worst.
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Every one of these paths is what your planner5d listing: cash, typical or investment mortgage, as well as hard money loans. Computer cash is the fastest. Hard money is less complicated to get approved for but higher rate of interest and short repayment terms. Hold rates, otherwise called carrying fees, are just the regard to the loan, taxes, insurance, energies, any association fees.
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Use the examples above to show how the reserve relates to Clause Two. In the Rocket example the worst case: Adds $20,000 repairs to the value (so $20,000 less value). A reserve that won’t take account of this missing $20,000 is a reserve you do not have.
Clause Seven: The Flipping Property Exit Order
Rule: My first resale is a retail sale on sold comparables. My backup is a rental. I model both before I buy.
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The planner5d exit advice is pragmatic. Staged the house, set the price based on recent sales, and marketed it with professional photos and open houses. Gatsby’s projects represent the opposite: staged, professional photography, and a cash payment at sale.
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A fallback exit is in your back pocket if the market goes awry. Plug in the same input data for the rental scenario. If the fallback doesn’t check out, the policy should state that before you go under contract, not after you’re held up for sale.
Clause Eight: Changing a Real Estate Strategy
Rule: I alter this policy only at scheduled review points, never in the middle of a deal.
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HTAG clears all this up neatly. If any one single requirement is proved wrong, do a complete run of the whole screen. Not break the rule for a single favourite. Sherrod’s final “don’t” emphasises the same point in another way: don’t fall in love with the house.
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A sound real estate policy also has a review date. Select one out of four quarter, run your policy and compare the policy number to the bottom line. Make a written note of the parameters. That makes a closed deal a policy improvement.
How FlipSync IQ Runs a Flipping Property Policy
Each clause maps to a screen. The deal analyser performs ARV simulation using stepped maximum purchase prices and incorporates margin protection. The Flip vs BRRRR analyser shows the retail exit against the rental exit. Cost of holding compares with the calendar, and the ROI dashboard compares forecast and real return as costs come in.
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Insert the policy numbers at time of purchase, and the system displays when a contract goes outside these policies. Policy is done ahead of time. The automation checks in.
The Real Estate Strategy You Can Check
Flipping property rewards investors who decide the rules before the deal arrives. Eight clauses fit on one page. The box, the price rule, the evidence, the skill line, the clock, the funding limit, the exit order, and the review date. Each one has a number you can test.
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Your real estate plan that stays in your mind. Collapses when challenged. Your real estate plan on paper. Develops muscle. Write yours this week and see your first clause beat the next listing that tempts you. Use Flip Sync IQ free to run a clause on a live deal.
Frequently Asked Questions
What should a written real estate strategy for flipping include?
Target area and price band, a maximum-offer rule, how to establish ARV and repairs, DIY skill line, time limit, funding limit, exit order, date to review. HTAG incorporates additional terms that disqualify a market from consideration.
Why write a real estate strategy before looking at deals?
You might write a real estate strategy before seeing deals to justify your own favourites. Morningstar observes that a written plan is more likely to be followed. A real estate policy, for example, is a rabbit hole for an impulsive offer.
Is the 70% rule a complete real estate strategy?
No. Rocket Mortgage describes it as a rule of thumb that may point you toward deals but won’t make the call for you. It doesn’t factor in loan expenses, taxes, and changes in the market. Use it as part of a broader strategy.
Should a flipper buy the best house on the street?
Egypt Sherrod says no. Buyers can shy away from a street where the majority of houses are in bad shape. Her tip is to buy the worst house on an improving street since you can fix a house much more easily than a community.
What counts as a sign of an improving neighbourhood?
Other improvements he can see going on, new restaurants and stores, city plans for playgrounds and sidewalks, or repaved roads. Take a drive by for a look and check the city council and planning records – not just in listing photos.
What should I do when a great deal breaks my rules?
Re-run the entire screen so you don’t fudge one property for every deal, according to HTAG: When a property appears to violate a rule, mark the entire screen to be rerun and then re-examine all the deals after changing the rule. If the deal still appears interesting after changing your rule, then the rule was the problem.
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