While we’re most pro fix & flip here, there are certainly some reasons people wouldn’t want to get started—or at least be aware of the potential downside.
Fix & flip businesses are my favorite types of real estate investments and our client’s primary bread and butter here at Do Hard Money. If you’ve ever seen any sort of reality show that centers around some cute married couple installing beadboard walls in a home they’re going to sell, you’ve most likely seen a fix & flip. But is it really that easy, or is there a catch? What are the pros and cons of fix & flip investments?
The biggest pros when it comes to house flipping include the high potential for profits, the ease at increasing your equity, the unlimited inventory, and the ability to improve the appeal of your town. The cons involve the volatility of the market conditions, the high level of risk, and the extended amount of time you’ll have to hold onto a property before listing it on the MLS.
But that is such a quick run-over that there’s a lot of nuance missing for each of these points. So let’s get into this more and talk about what a fix & flip is, how much money you can make, and the positives that come along with running a house flipping business. Plus, I’ll also give you the biggest considerations you need to be aware of before jumping into your first fix & flip so that you’re able to understand what it’ll take to become successful. Let’s dive in.
Summary
First, let’s clearly define what I mean by “fix & flip” as a real estate venture since there are multiple ways you can build a real estate investment business that doesn’t necessarily involve flipping.
Fix & flip is the term used for real estate investors who buy a property for less than it’s worth, spend money and time to renovate it, and then sell it for an increased price due to the rise in value (“flipping it”). If you’ve seen HGTV, then you’ve probably seen a fix & flip business.
Fix & flips are not rental properties and are typically residential properties, though it’s possible to flip commercial spaces; however, you’ve got to know the different expectations exclusive to commercial real estate.
Essentially to successfully fix and then flip a property, you’ve got to “buy low, sell high.”
If you’re curious what the other ways you can become a real estate investor are, they include:
Okay, now that that’s out of the way, let’s talk about the good side of having a fix & flip business. Granted, your mileage may vary, and none of these are guaranteed, but overall it’s safe to expect that you’ll have these perks:
One of the questions I get most often is, “how much can I make doing fix & flips?” Frankly, it’s a tricky question to answer (though I get why people want to know) because there are so many variables at play. You’ve got to consider your costs, timelines, overhead, and all the other fun things that come along with being an entrepreneur.
That said, there is some data out there for what you can expect to earn in terms of your salary once you’re an established flipper. Here’s what we’ve found to be the average income of house flippers in the United States:
State | Average Reported Yearly Salary (2020) |
---|---|
Alabama | $108,490 |
Alaska | $123,581 |
Arizona | $115,155 |
Arkansas | $109,217 |
California | $121,843 |
Colorado | $116,437 |
Connecticut | $124,755 |
Delaware | $116,593 |
Florida | $104,704 |
Georgia | $111,089 |
Hawaii | $129,328 |
Idaho | $113,912 |
Illinois | $108,623 |
Indiana | $114,417 |
Iowa | $112,197 |
Kansas | $114,658 |
Kentucky | $118,860 |
Louisiana | $113,364 |
Maine | $113,827 |
Maryland | $124,794 |
Massachusetts | $134,657 |
Michigan | $109,298 |
Minnesota | $116,892 |
Mississippi | $107,392 |
Missouri | $107,140 |
Montana | $116,352 |
Nebraska | $122,912 |
Nevada | $122,611 |
New Hampshire | $131,717 |
New Jersey | $118,323 |
New Mexico | $109,576 |
New York | $135,942 |
North Carolina | $99,700 |
North Dakota | $122,147 |
Ohio | $115,671 |
Oklahoma | $114,236 |
Oregon | $116,609 |
Pennsylvania | $117,608 |
Rhode Island | $123,741 |
South Carolina | $116,999 |
South Dakota | $118,580 |
Tennessee | $116,511 |
Texas | $109,814 |
Utah | $114,607 |
Vermont | $123,068 |
Virginia | $121,301 |
Washington | $133,717 |
West Virginia | $118,179 |
Wisconsin | $115,395 |
Wyoming | $122,041 |
Now, before you jump into this with dollar signs in your eyes, let me again emphasize that these are the incomes of experienced flippers. Your first few years will be a build-up to these numbers, so don’t fret if you’re not breaking six figures your first year.
I find the best way to hit goals like six figures is to understand what you’re going to need in terms of cold, hard numbers. Typically, our Do Hard Money clients report they make an average of $39,714 per deal. So if you’re a house flipper working in Virginia, you’ll need to buy and sell 3.05 houses every year to earn an income of $121,301.
I don’t tell you this to discourage you; far from it! Clearly, there’s good money to be made in house flipping, but it could take a few houses before that happens, so don’t get frustrated if your first few houses earn a relative trickle of money instead of a flood.
You’re probably waiting for the catch, right? Fix & flips can’t be all sunshine and puppies; what are the downsides you need to prepare yourself for?
Consider a town like Rochester, NY, which was home to both Xerox and Kodak and had a healthy housing market…until it didn’t. The market tanked pretty quickly as the companies began to move operations overseas to cut costs and stay competitive in an increasingly digital world. Imagine you were trying to flip a home right after those massive layoffs; not fun! Sadly, the city has been slow to recover even to this day.
There’s also another market you’ll be accountable to: the materials market. In the summer of 2021, you might remember the news stories about the ridiculous lumber prices, which skyrocketed 500% in some areas. What if you were installing a new deck on your investment property then? You’d need to scramble quickly just to break even or cut costs somewhere else.
Wait, don’t run away screaming yet! You don’t need to have a graduate-level education in all of this, but even scratching the surface of an education in each of these areas will help you immensely.
We’ve got so many articles and resources that can help you find cheap houses that are off-market and ready for the taking. Check out how our clients use the Next Property Roadmap to consistently source deals without getting dragged into a bidding war with other investors or potential homeowners.
In my opinion, there are way more pros than cons when it comes to running a fix & flip real estate investment business. That said, it’s still critical you go into house flipping with your eyes wide open and know the risks involved.
Did I miss a pro or con you think our readers need to know? Leave a comment and tell me!