Fix And Flip Real Estate Investing: A Beginner’s Guide

The term Fix and Flip in real estate investing refers to an approach where a real estate investor acquires a property that needs repairs, does the necessary renovations and then resells the property at a higher price to turn a profit. The Fix and Flip process could be compared to a chef’s meal preparation process. Similar to how a chef takes raw ingredients and uses their expertise to craft a delicious dish, a fix-and-flip investor takes a property needing repair and uses their renovation expertise to transform it into a valuable asset. The investor and the chef must carefully plan and execute their work, consider costs and time, and have a solid understanding of their market and customers to maximize their success.

Fix and flip investing strategy overview

Flipping refers to the practice of acquiring an asset with the intention of selling them later, in a short time frame, for a profit.  There are generally two types of flipping in real estate. The most straightforward is purchasing a property, holding it till the value appreciates, and then reselling it for a profit. The type we are looking at today is more involved as it requires investors to improve undervalued properties to increase their value. This is usually called the Fix and Flip strategy.

The Fix and Flip strategy is considered a short-term one, with returns seen as soon as the property is resold, usually within a few months to a year later, depending on the scope of renovation and market conditions. In a nutshell, an investor looks for a property being sold under market value, usually in a distressed situation, and in need of repairs. They acquire said property and undertake the required repairs at their own expense, then resell or flip the property for a profit.

The core concept of this strategy is to buy low and sell high.

Step By Step: The Fix & Flip Process

Find the right property

Keep an eye out for properties in desirable areas with strong market demand and a history of price appreciation. A slightly riskier approach is to try to identify up-and-coming areas that may appreciate in value rapidly. Look out for properties needing repairs but have the potential for significant value addition through renovations, as these are usually undervalued due to their condition.  

Estimate repair costs

Assess the property to discover all the areas in need of repair. Depending on your knowledge, you may need to hire a contractor or inspector to provide a professional evaluation. After you have compiled a list of renovations to be done, get quotes from multiple contractors to get a good idea of the costs involved. Select the most qualified and affordable contractor after comparing the quotes and maintain a clear budget for the project.

Purchase the property

Just as with other forms of investing, Fix and Flip projects can secure financing through various means, such as traditional mortgage loans, hard money loans, and private lending.

Manage the renovation

Hire the most suitable contractor for the project and ensure they have a clear plan to work within your budget and timeline. Always maintain a backup plan and a budget for unexpected expenses; this will help reduce the impact of any unanticipated situations. One of the critical steps to achieving the desired profits in Fix and Flip investments is to manage the time and costs of the renovations closely so that it doesn’t deviate from the plan, as any deviations will reduce the profit margin.

Sell the renovated property

Find suitable buyers by marketing the completed property to prospective buyers. This could be done in various ways, from holding open house days, using digital marketing, or even hiring a broker to help sell the property. Securing a price above the cost of property purchase and renovation costs is key to realizing a profit on this investment.

Conclusion

While we go into more detail about the pros and cons of the fix and flip strategy in a separate article, it’s essential to highlight the risk inherent in this approach. It’s important to understand the risks involved in purchasing a run-down property, the cost and effort to manage a renovation project, and the risk of selling in changing markets. That being said, the Fix and Flip strategy is a popular real estate investment approach that offers savvy real estate investors the ability to make relatively quick profits. Should you decide to pursue this strategy, our team at RE Investor News stands ready to assist you in securing funding, so don’t hesitate to contact us now.

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