If you are wondering how to make money in real estate, then here is our guide on one of the best real estate investment strategies: Fix and flip.
First: What is fix and flip in real estate?
Fix and flip is one of the short-term real estate investment strategies. In essence, you purchase a property that is selling for a below-market price. However, the property is usually in a distressed situation and needs renovations. In most cases, the property is in a very distressed condition and needs rehabilitation. What you do, at this point, is renovate the property at your own expense and then resell it. In this case, you should make sure that the price for which you are selling is enough to cover the renovation expenses as well as the profit margin.
Related: Best Way to Finance a Rental Property: Fix-and-Flips
Second: What makes a fix and flip one of the best real estate investment strategies?
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High profits:
The reason for real estate investors to invest in a fix and flip is the profit. One of the best aspects of real estate flips is the chance to make a huge profit in a very short time. This is actually what makes a fix and flip one of the short-term real estate investment strategies.
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Acquiring Experience and Knowledge Faster:
Fixing and flipping real estate consists of many operations and transactions that a real estate investor would have to deal with. This, however, is best in order to learn more about the real estate investing business. Throughout your experience with a real estate fix and flip, you will be able to learn a lot about expenses, budgeting, construction as well as the local real estate market.
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Forced Appreciation:
Fix and flip is one of the best real estate investment strategies when it comes to fast appreciation. The moment you purchase the property and start renovating it, it appreciates in value. This is called forced appreciation in real estate. Once you are done with the renovations, the property automatically goes up in market value. This means that you will be able to ask for a higher price that covers all the renovation expenses as well as having a great profit margin within the deal.
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Little Competition:
The thing with the fix and flip real estate is that it is a risky investment strategy. Therefore, not many real estate investors dare to take the risk with such real estate investment strategies. This leaves you with less competition in the real estate market which means that you get a higher chance of client turnout.
Related: What Are the Most Important Aspects of Real Estate Education?
Third: What are the cons to investing in a fix and flip real estate?
Before stepping into a fix and flip, make sure you take the following into account:
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You Invest a lot of Time and Effort:
Investing in a fix and flip requires time and effort. Basically, despite the benefit of being a short-term investment, you will be working full-time on it. As we have mentioned before, you buy a real estate property that is in a distressed condition. This means that this property needs renovations and, sometimes, these renovations are major. But before that, it will take you some time to find the property in the first place. You will also have to spend some time budgeting and estimating the repair costs as well as contacting handymen to do the work. Therefore, if you think that you have the time and the energy to invest in such real estate investment strategies, then go ahead. Otherwise, if you are a part-time real estate investor, and time is the only thing that you cannot afford, then we recommend you choose other strategies.
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Unexpected Expenses:
Even though you will start by estimating the repair costs, it does not mean that you will not have any unexpected costs occurring along the way. So, really, when investing in a fix and flip, you can never guess what types of expenses will occur unless you actually start working on it.
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You are on a Time Limit:
Flipping a real estate property will put you in a time limit to sell the property. Otherwise, you are risking additional property expenses piling up and costing you your own money. Therefore, the faster you sell the property, the more you save on property expenses. However, to be able to succeed in fix and flip, you must have good networking skills. Having connections has a huge impact on your business as you will always find amongst them someone who is looking to buy a property.
Fourth: How to buy cheap homes for sale to fix and flip
#1. Hire a real estate agent: Regardless of the real estate investment strategies you choose, a real estate agent is a must. Not everybody knows how to buy property. Moreover, finding the best investment property for sale takes more than just knowledge of the real estate market. It takes connections, negotiation skills, as well as knowing the best places to invest in real estate.
#2. Conduct a real estate market analysis: Comparing your investment property to others within the same locality is very important. This is what we call the real estate market analysis. The importance of it comes into play when it’s time to pay for the property. Thus, this type of analysis will help you determine whether the property is worth the investment at all.
#3. Perform investment property analysis: Unlike the real estate market analysis, the investment property analysis focuses more on the property itself. It helps real estate investors determine the investment potential of a property before purchasing it by calculating the return on investment. It is also a great way to determine whether you are working with the right real estate investment strategies. Moreover, if you wish to get a more accurate analysis and save some time, try Mashvisor’s investment property calculator. This product is one of the best when it comes to investing in property.
#4. Home inspection: Well, obviously, you cannot go about buying a property without inspecting it. In a fix and flip, a home inspection is a must in order to estimate the repair costs. You will also be able to estimate how much you will be able to gain in return for this investment.
Related: Mashvisor: A Real Estate Investing Tool for All Your Investment Needs
Final tip:
If you are a beginner real estate investor, then we strongly recommend you go with low-risk investments first. Fix and flip are one of the high-risk real estate investment strategies. Investing in rental properties would make better sense until you acquire the needed experience to flip properties.
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