Ever seen one of those famous reality TV shows where people take on run-down homes, carry out renovation work and sell the same for margins upwards of $50K?
I am sure you have and have often wondered how easy and simple the process can be. All you need to do is make a low offer on a dilapidated property, get a team of renovation experts, finish up the work, market on social media, and then sell it to smiling new homeowners!
Remember, what looks easy, is rarely so. You need to understand that a real estate investment that requires fixing and flipping is no child’s play. If you are not careful, the same house that was supposed to pay for your child’s college tuition might turn into a money-guzzling pit.
What we are trying to say is that fixing and flipping homes is not easy. Nor is it impossible. You need to do the hard work, put in the due diligence, build a safety net, and cover as many vulnerable bases as possible.
In this resource article, we are going to help investors and professionals looking to enter the exciting and challenging world of flipping homes.
Fixing and Flipping Houses: Meaning and Definition
At no point in the resource will we try to complicate something that makes it difficult for newer entrants in the industry to understand.
This is why we are going to offer the most simplistic definition of fixing and flipping houses. In simple words, this is an important subset of real estate investments. In a fixing and flipping project, the investor buys a property (which is in shambles), renovates it using their own team of contractors and designers, and then sells the same to new homeowners looking to buy.
You might be asking- why does it work? The straight answer is that a majority of homeowners want homes that are ready to move. They do not want to spend months doing interior and redesign work. If a home broadly fits into their requirements, they do not hesitate to pay market rates and go ahead with the purchase.
Understand that renovating a home takes a lot of time, buckets of energy, and finances that do not seem to stop flowing over. Nobody wants to take on that headache and this is why they prefer homes that are ready to move.
How to Start in the Fix and Flip Real Estate Market: 5 Steps for Beginners
In this section, we are going to list down five steps that will help you start your journey in the fix and flip real estate market-
1. Research and start with Class B and C Neighborhoods-
Localities and regions are marked in real estate rankings from a grade of A to D. A refer to the most affluent high net worth areas and D categorizes the poorest and most run-down areas. If you are looking to start, look for solid working-class neighborhoods in Class B and C. They are safer, come with fewer vulnerabilities, and are growing on the back of job opportunities.
2. Set up Fixing and Flipping Business Plans and Budgets-
At the end of the day, this fixing and flipping homes is a business, that has to be profitable. This means you need a business plan to help give you direction. Start by writing down budgets, the scope of the project, timelines, vendor details, and the type of renovation you want to go for. If you are not careful, you will end up overspending and not being able to get the profit you want.
3. Get your Finances in order for the Project-
You need to understand that almost all the successful players in this industry depend on effective fix and flip financing to help them overcome problems. You do not want to drain all your cash in the project. Financing with credible and reputed lenders provides you with a safety net. Make sure that you go through all the details with the financing institutions and get the best deal possible.
4. Build a strong and efficient Network of Vendors-
If you want to bring down additional costs, you need to have a strong support team of real estate agents, contractors, suppliers, and other vendors. You never know where a lead can come from that can help you close the sale. You can also use the network to help the new homebuyers by passing on contact information so that everyone is happy as part of the deal.
5. Find Good House Deals at Great Locations-
In order to have a successful fix and flip project, you need two main things- a great buy on the shambled house and finding one that is located in a great neighborhood. This will protect you from crossing the price threshold, overpaying, and guarantee that you will be able to turn over a handsome profit from the entire project. Pay close attention to the buying price and location.
The Bottom Line
While the first couple of projects might not be able to live up to your expectations in terms of the ROIs, you need to consider them as learning experiences. There is a lot of due diligence that needs to be carried out to become successful in this real estate investment sector. Try to pay attention to what your network is trying to tell you. All the above steps will help you gain a credible entryway into this competitive, dynamic, and profitable industry.