By Matthew Dittburner
What is a baby flip? You could refer to it as a low risk, starter style flip. Usually these properties have been neglected for decades and with a $10-15k budget for ONLY cosmetic renovations, hiring a reliable and affordable handy man can get these properties looking fresh and fixed up.
Your profit expectations on one of these style projects can be anywhere from $10-100k depending on the area and how good of a deal you get them for. They are low risk because as long as your comparables line up and the area is in good demand, they are easy to sell to either a young family as a starter home or an investor looking for cash flow properties at a lower price point. Purchasing these properties can be anywhere from $100-200k and anything over that would probably require more than $10-15k for a renovation in order to maximize your profits.
You are specifically looking for properties that are solid and structurally sound, but have been neglected for so long that most investors with a weak stomach will turn and run in the other direction, not able to visualize what they will look like cleaned up. Minor landscaping, thorough cleaning, full painting inside and out, updating the kitchen, bathroom and maybe even flooring, is all you really need to do to these properties. If you have a bit of construction experience or you are a bit handy, it can definitely be done within a $10-15k budget.
Getting a qualified home inspector is a MUST, so that they can point out any structural or functional issues that you may not be trained to see. These types of investments are also easier to obtain private financing on because it is also low risk for your lenders. Sometimes asking for hundreds of thousands of dollars will require more information than you have to give lenders on your project plans, but with these properties it is very simple and obvious what you need to do to them, and is hard to make mistakes on cosmetic corrections. Lenders like to take baby steps as well with their investors, and this would be a good way to start developing those relationships without the pressure you might have with larger projects.
The other great thing about having only a $10-15k renovation budget on these projects is how easy it is to finance the construction. Most of these can be done with a small line of credit and a credit card. Asking the bank, as you are just starting out in this business for a line of credit of $50-100k with little to no assets doesn’t exist, no matter how high your credit score is. Asking for a $10k line of credit and a $5k Home Depot card is almost instantly approved. And because the turnaround time on these flips is so short, even if you end up paying a bit of compounded interest for a few months, your overall profit on these projects will compensate for it.
The last thing I would like to point out about doing a “baby flip” is when you get to cash out! Bigger flips can take anywhere from 4-12 months just for the renovation, and then can take a little while to sell. With a basic clean and cosmetic flip you are usually in and out of there within 4-8 weeks max. This is great because even if it takes just as long to sell on the market you are looking at getting paid anywhere from 3-6 months usually from the time you took possession. Who doesn’t like to get paid?
Do a couple of these on the side every year and you are doing great! Hope this has inspired you too take action even if it is just baby steps with baby flips!