Fix & flip real estate investing can be a lucrative real estate investment strategy. However, jumping in with both feet before you understand the basics of fix & flip investing can be financially dangerous.
TV shows and online videos make flipping houses seem like an easy way to turn a fast buck. And while it may seem simple, there are a number of considerations and potential pitfalls to keep in mind.
In this article, we’ll cover the basics of fix & flip investing so you can make informed decisions and maximize your chances of success.
What Is Fix & Flip Investing?
A fix & flip is a type of real estate investment whereby you purchase an undervalued or run down property for a relatively low price and then turn around and sell it at a higher price.
In order to do this, you first need to fix or rehab the property as necessary to either make the property habitable again or simply improve it aesthetically (this is the “fix” part).
Once the property has been fixed or rehabbed, you then resell the property for a higher price than you paid for it plus the cost to fix it up (this is the “flip” part).
How Do I Go About Fix & Flipping?
Find Your Market
You’ll first you need to determine the market in which you plan to invest. You can start in your “back yard”, i.e., the current city or town in which you live.
If that’s not an affordable or viable option, then you may need to look at alternative markets. The next city or town, or even the next state over from yours, for example.
As part of this first step, you’ll want to make a project plan and set an overall budget.
Find Your Property
One of the most important aspects of fix & flip investing is knowing how to identify the right investment property. Investing in the wrong property could lead to heavy losses.
Avoid over-paying for a property that requires extensive renovation. Doing so can make it difficult to glean a profit at the end of the day.
As part of this step, you should work closely with a realtor that knows the market in which your looking for your property.
Secure Funding
Having enough money for not only the down payment (which can be up to 30% of the purchase price), but the estimated total cost of the “fix” part of the project is critical.
This includes the purchase price of the property. It also includes the cost of renovations, permits, and any other expenses involved in the project.
You’ll also need to factor in the costs of holding the property, such as mortgage payments, property taxes, and utilities.
Find A Contractor
If you don’t plan to do the fix & flip project yourself, you’ll need to find a contractor. The right contractor can potentially make or break your project.
If you plan to oversee the project yourself, then be prepared to visit the property regularly to ensure the project progresses according to your plan and budget.
If you choose a General Contractor (“GC”) to oversee the project, it will still be a good idea to visit the property regularly.
Get Proper Insurance
After you’ve determined your market, decided upon a property to purchase, secured your funds, and found a contractor, it’s time to purchase the property and get to work on the rehab.
But before you do, you’ll need to have the project properly insured.
Start with your current insurance agent. If they are unable to find proper coverage for your fix & flip investment, then look for an agency like that specializes in unique risks, including fix & flip renovations.
Sell For A Nice Profit
Finally, when your project is finished, it’s time to resell the property for a nice profit!
Work closely with your realtor to determine the right selling price. This will help ensure you do not over-price your property for the current market conditions.
You also don’t want to under price it. Remember, the key is to “flip” the property as quickly as possible, but you do not want to leave any money on the table in the process.
Conclusion
Fix & flip real estate investing can be an exciting and potentially lucrative way to invest in real estate. However, it’s important to understand the basics of fix & flip investing before you dive in head first.
Be sure to approach your fix & flip projects with a solid financial plan, a wise choice of properties, a thorough renovation plan, and the right insurance coverage in place.
And by pricing your property intelligently and having a solid exit strategy, you can maximize your chances of success and ensure that your fix & flip investment pays off.
With the right approach and a bit of investment savvy, you can turn a distressed property into a profitable investment.
****This article is intended for informational/educational purposes only. It is not meant as, nor should it be interpreted as, actual investment advise regarding real estate investing of any kind, including fix and flip real estate investing*****