More and more people have recognized the value of working on flipping houses—a term that is used to denote a form of real estate investment. The investor buys a property that needs renovation at a lower price, repairs it, and then sells the property at a large profit.
Making an investment that gives several thousands of dollars in profit is what attracts many people to the fixing and flipping business. However, there’s no guarantee that your purchase will end in profit. There are countless unsuccessful stories of bad purchases, renovations that cost more than expected, and homes that have been sold by too small a margin to make a profit.
For this reason, if you’re interested in mastering the fix and flip business, below we share some essential tips on making it.
You can never be completely sure that you can make a profit by flipping a house or an apartment. To be relatively safe, the house or apartment should be bought below the estimated market value. Many who buy, renovate, and sell houses and apartments invest in homes that must be completely renovated. Try to evaluate what the home can be sold for when it’s completely renovated, and calculate the costs and profit you want to make on the sale.
Fortunately, for those who don’t have the necessary funds, there are great opportunities available today in the form of fix and flip loans for beginners so even if you cannot afford to pay for a certain property you want to flip, you can use these loans and start your dream project. Look at the different fix and flip loans and choose the one that is most suited for your needs. The best part about these loans is that they do not take as long as traditional loans offered by banks to be approved and you have greater control of the rate as well.
Become an Expert
Before you put your money down on investment property, make sure to assemble a great team and have a bulletproof plan and a backup plan in place. Your team should include a real estate agent, contractor, attorney, and handyman. In the meantime, you should take your time to do thorough research and obtain as much knowledge as possible about the real estate market. You should learn about every inch of this business, from finance and contracts to plumbing.
Property values tend to vary significantly from one neighborhood to the next and when making upgrades, make sure they keep up with the property values in the area and the right demographic that’s most likely to be interested in buying the house. This means that you should learn everything from what type of kitchen countertops to what kind of bathroom sink will give you the best return on investment.
You must figure out what type of people will most likely buy the house and cater strategically to their specific needs with the budget you have. When mastering the fix and flip business, you sometimes have to act as a contractor as well as a real estate agent.
Draft a Business Plan
Having a business plan in place will give you a clear picture of everything that goes into the fix and flip business and it can help you avoid making mistakes, achieve your goals, and make a profit. Keep your business plan as detailed as possible and include essential elements like summary, objectives, SWOT analysis, and so on.
Define potential expenses in a detailed financial plan which will also focus on repairs, taxes, and fees for workers, the real estate agent, and the attorney. This will ultimately help you determine whether you will be able to turn a profit and for how much.
Use the 70% Rule
Once you find the right property that you can purchase and repair, you must avoid the dreaded money pit scenario by being very disciplined and strict with your budget. You can do this by applying the 70% rule, which refers to 70% of the after-repair value of a home that you’re planning to fix and flip.
This formula can be your starting point, so calculate the maximum sum you can pay for a property, based on the ARV and estimated repair costs. This can be adjusted based on how hot the market is at the moment.
Fix and flip businesses can be very profitable if done right from the beginning. Educate yourself before getting started, round up a good crew of professionals, and think of all the financial aspects in advance so you can avoid wasting time and money down the road.