Fix and flip is an enduring real estate investing strategy that involves finding undervalued properties that need work.
The basics are easy to grasp. If you’re able to invest in a property that needs work at a low enough price, you’ll be able to do the repairs and sell for a profit.
At any given time many properties in the local market benefit from a Fix and Flip strategy. Foreclosures are a prime example that’s attractive to investors. It’s no secret that when homeowners fall behind on their mortgage payments, they don’t continue to handle maintenance and upkeep. That means purchasing a property out of foreclosure will need a significant amount of work and repairs.
Trouble Comes When a Flipper Becomes a Keeper
Foreclosure properties have a few drawbacks worth mentioning.
Banks who are looking to unload the property fast don’t want to risk a further investment to bring the place up to speed. This stage is where real estate investors come into the picture. Their motivation for quick profits draws them into the purchase. They’re looking to get in and out as fast as possible. There are two primary reasons a homeowner is willing to sell at a discount:
- The house is in need of repairs. A house that is in dire condition will not bring top dollar on the open market. The seller realizes this limitation and is willing to reduce the price to offload the repair responsibility to someone else. Investors come in and buy the house at a discount and do the repairs needed to increase the value. Once they complete all repairs, they “flip” for a tidy profit.
- The owner needs a quick exit. There are many reasons a homeowner wants to sell a house quickly. Life events like a lost job, a forced relocation, or a divorce all may precipitate the desire to move quickly. The investor makes the repair, which once again makes the house “habitable,” which also means a new owner is eligible for a home loan. Their profit is the difference between what the new buyer pays and what their purchase and repairs totaled.
Fix and flips have been an important part of the real estate industry for decades. Someone who wants to excel in this industry should have a good understanding of market values, the sector, and home repair. They should also possess excellent “people skills” to deal with others every step of the way.
As a real estate investor, you don’t want a distressed property to become a keeper. You’re looking to flip and move on to the next one. Since the foreclosures have few of the qualities you want in a long-term residence, they do terrible as a keeper.
The positives of this method are that it’s possible to earn an enormous return in a short period. Since the value of neighboring houses often decided the value of your property, astute investors can calculate potential profit rather quickly.
Distressed properties are often in worse shape than imagined. Investors don’t always get the opportunity to inspect the house thoroughly before buying. If they’re wrong about how much money it will take to fix the house, they will lose money on the transaction.
There’s no doubt that the fix and flip real estate investing strategy will continue to attracts its share of fans. If you’re into the idea of adding value and getting a nice profit and you’re not afraid of doing hard work, this strategy could be an excellent starting point.