When high school friends and business partners Alia Khosravi and Alan Blue flipped their first home, a home in need of repairs that they bought for about $95,000 in Fort Collins, Colorado, they didn't know exactly what they were getting into.
“My only construction experience prior to that first flip was screwing in a light bulb,” Khosravi told Insider.
Despite his lack of experience, Blue said he renovated the home on a budget of less than $35,000 and made a profit of about $20,000, adding that it was “more than I ever expected.”
The investors say they have completed 91 real estate transactions, mostly in the Denver area, since executing the deal in 2009. According to their LLC's income statement viewed by Insider, they completed 15 real estate transactions in 2022 alone, bringing in gross profits of $1.2 million.
Not all deals were successful.
Blue noted that they lost $9,000 on the second resale: “Losing $9,000 on a property that you put your heart and soul into was a blow, but at the same time, it helped us learn a lot and realize our mistakes.”
After more than a decade of experience, they've learned that “no resale ever goes as smoothly as planned,” Blue says. “Something always happens, but if you have a system in place, you can manage what happens and still get a good result.”
Veteran flippers shared their four keys to successful flipping.
1. Know the numbers: how much it will cost to renovate and how much it will sell for
Khosravi said experience has taught him the importance of knowing all the numbers: “If you don't know how much it's actually going to cost to resell the house, and you don't know how much repairs are going to cost, you're in a tough spot from the start. You're just going to have to cross your fingers and hope for the best.”
But once we know the numbers, we'll be more certain.
“There's very little risk when you buy real estate because you know exactly what the house will sell for, and you know pretty accurately how much it will cost to fix it up so you can sell it,” Khosravi says. “You don't predict either of those things down to the dollar, but you build up enough profit that you're still okay if something unexpected happens, the market changes, or it takes a while to sell.”
When searching for real estate, keep in mind that location can have a big impact on a home's value.
“In some areas, the difference in price between a home on a major road or highway and one that's not can be as much as $60,000,” Khosravi said.
Paying attention to your home's surroundings is especially important today, he added, because the market is changing and there may be even more listings coming up next year: “If the market goes down, people will be more picky and homes in less desirable parts of a neighborhood will have to lower their prices in order to sell. There's no way around it.”
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2. Consult with several general contractors before hiring one.
Finding the right general contractor to help you with your renovation can take time and effort, but it's key to a successful remodel, especially if you have little or no building experience. You'll depend on this general contractor to turn your home in need of repairs into a marketable home.
Khosravi and Blue struggled with this step at first.
Khosravi and Blue's first resale property is a home in need of repairs in Fort Collins, Colorado. Courtesy of Alia Khosravi and Alan Blue
“We were wearing out a lot of contractors,” Khosravi said. “They either didn't show up or took a lot longer than expected.”
To avoid hiring a substandard contractor, “talk to 10 people before you start,” Blue advises. “Call references, check out their past work, ask to see completed projects, and don't just take their word for it. Do as much due diligence as you can on your side.”
3. Pay close attention to the important aspects of the property.
When evaluating a deal, Khosravi and Blue look at aspects of a home that could potentially cause big problems and result in expensive repairs.
These big-ticket items include the roof, foundation, heating and air conditioning systems, sewer lines, etc. Keep in mind that depending on where you're buying, these items may be more or less important. For example, in Colorado, it's explained that it's especially important to check a home's foundation and sewer lines.
When walking through a home you're considering buying, “look for visible cracks, make sure door frames aren't perfectly square, doors that don't close properly,” Blue says. “You'll also want to look at the age of your heating appliances. How's the air conditioning? How old is it? Same for your water heater.”
It's easy to overlook issues, especially if you're a new investor eager to close a deal. But it can be a costly mistake that can quickly put you over budget during a renovation, Blue warns. “You might think you can easily do it for $25,000 or $30,000, but that's if the roof is solid, the sewer is solid and the fireplace is fine.”
4. Stick to a standard, traditional home layout
The second house that Khosravi and Blue bought with the intent of flipping it (a deal that resulted in a $9,000 loss) was a “quirky property,” Blue describes. Among other unusual features, “it had a big, weird detached garage with a mother-in-law suite above it.”
Blue said that's one of the reasons he took a loss on the sale: “There were fewer buyers interested in looking at such a unique property.”
He and Khosravi found that people tend to prefer “standard floor plans” like two bedrooms, two bathrooms, and a kitchen and dining room. “If you're looking for a home that feels odd when you walk in, maybe the kitchen or bedroom is really small or doesn't make sense where it is in the floor plan, don't overlook that. If the home feels odd to you, a potential buyer will, too.”
While Khosravi and Blue's experience may help you avoid some common mistakes, go into your first resale knowing that not everything will go according to plan.
“You've been in any situation once, and you learn how to handle it,” Blue said. “We've made a lot of mistakes along the way, and it's cost us money. Education costs money anyway, and we choose to learn on the job. But we've been doing this for so many years that we know what to expect and what to look out for.”