In the last few years, fixing and flipping properties has become a trending investment. While this is primarily attributed to the growing number of real-estate reality shows about the venture, most people still don’t understand the intricate details needed to fix and flip homes.
According to a news release by PR Newswire, 6.2% of the total number of real estate properties sold in 2019 were flipped properties. This is the highest reported number of flipped homes since 2011. The number was also high compared to 5.8% in 2018 and 5.7% in 2017.
Fix and flip homes can be a great investment, but you must know what you’re doing. Click here to learn what to look out for and other great tips.
What Are Fix and Flip Homes?
A flip and fix home is a property bought by an investor, renovated, and then sold at a profit. These properties are often bought at a discount from the original property owner because of their condition. Most flipped homes are often abandoned and neglected houses in which the previous owners were unable to pay for property upkeep or choose not to do the required renovations.
Why Do Investors Choose to Fix and Flip Houses?
There are two different types of property investors; those who buy properties and hold them for renting and those who renovate them then sell at a profit. In both cases, the investor’s goals play an important role in deciding what to do after purchasing a property.
A fix and flip investor’s primary goal is to buy the property, renovate it, and sell it as quickly as possible to make a profit. The faster the property sells, the higher the returns and the lower the carrying costs.
If you are a property fix and flip investor, you are looking to make a single significant return on the property and get cashback into your pocket as soon as possible. The process is often short, which reduces the risk of market fluctuations impacting your property value. However, to successfully fix and flip a house, you must make financially-sane decisions.
Advantages of Fixing and Flipping a House
As seen on home flipping TV shows, there are many benefits of property fix and flip projects. Some of these benefits may include:
The Potential to Make High Profits
This is one of the biggest reasons why most investors are attracted to flipping houses. Fixing and flipping properties is a potentially rewarding business. Not only do investors make high returns on investments, but they are also able to do so in a short period of time.
It’s Rewarding to Renovate a Home
There are many rewards for undertaking a house flipping project. The satisfaction of turning an old neglected, and abandoned house into a beautiful and habitable home for a new family is gratifying. You will also be actively contributing to improving the community and environment where the flipped house is located.
It’s a Personal Development Opportunity
Although a home flipping project requires a lot of money and time, it’s also an opportunity to gain valuable skills. These skills include the ability to manage a team, negotiate, delegate tasks, and manage time. These skills will also apply in other future business endeavors.
Mistakes to Avoid When Looking to Fix and Flip Homes
Fixing and flipping homes is a real business with risks. There are many mistakes that most beginners make when joining the business. Below are six common mistakes to avoid and get started on the right foot when looking to fix and flip homes for sale:
1. Failing to Buy Property Insurance
Forgetting to get property insurance before investing your money in any fix and flip project is an amateur mistake. Property insurance will reduce the risk of losing your money in case of theft or damages from fire or flood, which will, in turn, protect your investment.
When starting, it’s key to ensure that your initial investment is protected. Do some comparisons online and ask a local insurance agent about the best insurance policy to purchase to protect your investment.
2. Being Over-Ambitious
This is among the biggest mistakes fix and flip investors make. Before buying a property, come up with a budget depending on how much money you have or how much you are willing to spend on the project. Ensure you get into the business with your eyes open.
Do some research to understand how much it will cost to buy and flip a property and confirm you have enough money to cover the project’s total cost. Remember that your returns depend on cost planning and accurate budgeting.
3. Lack of a Business Plan
Fixing and flipping houses is an investment project and should be treated as such. Most people make the mistake of treating a house flipping project as a hobby. Don’t make the mistake of investing money in any project without a business plan.
Having a well-drafted business plan will give you an overview of the project’s return on investment (ROI), rewards, and risks. A strategic business plan will also act as a roadmap, helping you work harder towards achieving your goals. For example, if I want to fix and flip homes near me, my business plan will help me understand the overview of the project’s timeline and the cost of the entire venture.
4. Choosing the Wrong Business Partner
A property fixing and flipping project is a huge undertaking. You will need all the help you can get. Before choosing someone to partner with in this endeavor, ensure you conduct a background check.
If you’re new at this, choose someone who has some experience in the game; don’t just go with your best friend. You wouldn’t want to hurt your friendship over an investment. The task at hand needs someone capable of handling the project and is familiar with renovation projects.
5. Hiring the Wrong Contractors
Hiring the wrong people to assist with the project is a huge mistake. Ensure you properly vet the plumber, building contractor, and carpenter you hire. Working with people who are good at what they do will ensure you get value for your money.
If you purchased a property with unique or historic features, ensure you look for someone specializing in renovating such a property. Contractors who build or renovate modern buildings may not understand how historic property renovations work. Consult with trusted experts before hiring.
6. Not Studying Your Market
Not studying your market before starting the project will hurt your chances of success. Ensure you conduct a market analysis and vet the area you want to buy property from. A market analysis will help you:
- Understand the rewards and risks of doing business
- Pinpoint the best time to buy and sell your property
- Understand the current market trends
- Estimate the expected purchasing and selling price of your property
Studying and understanding your market will prepare you for what to expect during the process. It will also help you look for ways to maximize your returns.
What Happens When Your Property Takes Too Long to Sell?
If not done right, a fix and the flip project could lead to thousands of dollars in losses. The longer the house remains on the market, the more money it will cost you. Below are the ways your property could cost you money if it doesn’t sell fast enough:
Increased Interest Rates
Is your property tied to a loan? The longer it stays in the market, the higher the interest rate you pay.
Opportunity Cost
This means you might lose the opportunity to invest in other ventures because your capital is tied to the project. If your property stays in the market for a long time, you will not be able to use the money for other potentially profitable projects.
Increased Holding Costs
A property’s holding costs include property insurance, Homeowners Association fees, property taxes, property management fees, and utility costs. The longer the flipped house remains unsold, the higher the holding costs.
Find the Right Financing Option to Fix and Flip a Home
Some investors prefer relying on fix and flip home loans to finance the project. The loan can cover property costs, repairs, and renovations. If you’re planning a quick house flip, ensure you get the right financing.
Most investors often struggle to find a traditional lender such as a bank to finance the project. If you find yourself in such a predicament, the best option is to go for a reputable hard money lender. Hard money lenders offer an easy application process and a faster rate of approval than traditional lenders.
Having the right financing option when flipping a home will improve your chances of completing the project on time.
What Are You Waiting for? Start Flipping Houses Now!
If you are looking to start fix and flip homes, ensure you have enough money to cover the cost of buying the house, renovations, and other additional property-related costs. Look for someone who can guide and mentor you through the process. Follow the tips above, and most importantly, avoid the house flipping mistakes.
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