Becoming a fix & flip real estate investor is a popular method for entrepreneurs looking for a profitable way to start a business. Refreshing a poorly maintained home not only gives it a new life but can also help communities thrive that may have been previously overlooked. If you’re just getting started, the whole process can seem overwhelming, but it doesn’t have to be. Let’s break down how to choose the right house to fix & flip for your business.
To find the right investment property, you’ll need to balance your costs with a list price the market will bear. Factors like location, amount of work required, how hot the market is, and others will need to be taken into account. To be safe, you should also establish an exit strategy for what you can do if the property can’t be sold.
So let’s get into this and talk about what exactly a fix & flip strategy looks like. Plus, I’ll break down all the things you need to consider when it comes to buying the home, calculating your profits, and more. If this gets to be just a little too much, I’ll also show you a few different ways you can avoid the fix & flip strategy while still being a real estate investor. Let’s go!
Fix & flip properties are investment properties that are bought in some state of disrepair. They could be vacant homes that haven’t been occupied for a number of years. Or they could be rental properties that have had, let’s say, less-than-stellar tenants and landlords who haven’t kept up with maintaining the home. Or they could just be single-family homes that have had owners who had neither the time, money, nor inclination to keep up with making sure the house stayed in good shape.
Regardless of the reason, there’s usually a lower-than-market cost attached to them to make up for the amount of work that needs to be done. Savvy real estate investors will take note of these properties and either negotiate the price down further or just buy them outright if the deal is good enough.
Once an investor owns the house, they’ll spend the time and money to get the home restored to its former glory (or better) and list it for sale at an increased price that accounts for their costs and profit. The home is then sold to a new family who gets to enjoy their new move-in-ready house.
Typically, the entire fix & flip process will take less than a year though it’s dependent on how patient you are with the market. The sooner you’re able to flip it off to another person, the better your chances are to make a profit.
Let’s say you’re ready to dive in and find your first investment property. What are some factors you need to keep an eye out for?
Unfortunately, there are no set standards for how much you should definitively expect when buying a fix & flip as your profit is based on a few variables. Things like the market, your costs, time, and the amount of profit you’re looking to make all factor into how much you’re able to list the property for.
What I suggest is that before buying a property, you work backward to ensure you’re getting a good deal. Flipping Mastery TV has a fantastic video that dives into how you can calculate the amount of profit you can expect:
Essentially, the formula works like this:
Take your estimate (or appraisal) of what the property will be worth after it’s fixed up and multiply that by 0.7.
The rest of the 30% will usually get divvied up like this:
Then, you subtract your rehab costs. So if you have a deal with a $300k ARV and expected repairs of 25k, that looks like:
$300k x .7 = $210k
Now subtract your $25k repairs and that means you can spend $185k on that property and expect to make a profit of $45k! Woohoo!
After you’ve made these calculations for your particular deal, you’ll be able to see what profits you can expect to make on each home that’s successfully flipped.
Running a fix & flip real estate business has become very popular thanks to reality TV, which I think is great. Having the ability to create a house that excites your buyer and makes them feel right at home is one of the most satisfying feelings in this industry.
That said, not everyone makes it in this business, so I want to give you a few tips for how you can get your business going the right way.
This is the checklist I like to use before deciding whether or not to invest in a property.
If fix & flip feels a little too daunting, whether you’re just not handy or don’t have the capital to hire pros, there are other ways you can still become a real estate investor.
Wholesaling – Wholesaling is great for investors who don’t have a lot of capital or who may run into issues getting financing due to credit or employment histories. Wholesaling involves finding a home and getting it under contract. Once the house is under contract, you, as the wholesaler, then sell it to another person for a markup. They then continue the transaction to close on the home, get the mortgage, etc. It’s like being a finder for real estate and collecting a fee for your effort.
Rental Properties – Rental properties are excellent ways to create a steady stream of income for your business. You can start small with a single-family home or invest in a large apartment complex with others; the options are near limitless. If you’re interested in learning more about how a large commercial apartment complex would run, check out our article that goes into whether it’s better to start with commercial properties or residential.
Fix & flip properties are excellent investments that can be not only profitable but do a lot of good for a community. Go into the process with your eyes wide open by taking into account the things mentioned above. That way, you’ll be able to grow your business in a steady way that sets you on the path to continued success.
Learn how to make money flipping real estate with us by attending our next webinar.