Fix & Flip
Tips on how to make money on Fixing & Flipping homes
Real Estate FIX & FLIP concept sounds like an easy and straightforward approach.
Purchase a home that requires some remodeling, touch it up and put the property back on the market for sale. But it can take quite some time to find a good deal, decent financing rates, reliable contractor, plan the remodeling, find out the property market value, make sure the numbers meet the ends, then finally sell the property.
To be successful, it will require time and dedication. If any of the steps are misdirected or not managed well, what could be a very nice profit can become a loss.
Is it worth fixing and flipping homes? How much money can you make?
Fix and Flip is not a part time job that will make you a fortune. Today there are many reality TV shows that can give you quite exciting ideas and some of them overstate the amount earned on a final sale. Flipping a home usually generates a profit that ranges from 8% to 12% of the amount invested. So the faster the whole process occurs, the sooner you will have the money back and negotiate your next Fix and Flip deal. Again, it all depends on how much money you are willing to make and how soon you want the entire transaction to take place. You will be competing with other investors, so in a deal where you could pocket 15% net profit, you would have to settle for less. It all comes to the buying process. Remember, the money is made when buying property, not the sale itself. Are you getting the property through the MLS, foreclosure, short-sale, auction? Some investors will settle for a 8% profit, some will settle for 12%, so if you expect more, your house could take longer to sell. In some instances, fix and flip can make you up to 40% profit. But the real money does not come from one flip, instead, work with multiple properties that generate decent profit. Many investors work with a minimum of two properties per month and make it a very profitable business.
Can Fix and Flip be financed?
Yes, financing fix and flips allows you to buy more properties and generate more deals. It is difficult though to find lenders who provide short-term loans. Hard money is another option, but the fees are way higher and will eat up most of your profit.
What are the costs to fix and flip a property?
The fix and flip reality TV shows tell you the purchase price, the cost of the remodeling and the selling price. But there are much more involved than that. A few of them are the financing costs (if financing), real estate commission when selling, property taxes, insurance and HOA fees.
Financing for Fix and Flip can be expensive and most investors don’t have cash. A fix and flip will usually require from 20%-30% downpayment and if the financing is through hard money, interest rates are high and range from 8%-12% a year.
The costs are also different for each deal. Some properties will have HOA, each state and county also have their own specific taxes. Plus the remodeling and maintenance will be distinct for each property.
Selling costs also vary. In some states, it is very common for the buyer to ask the seller to pay for the closing costs which can be 3% or more of the selling price. Then comes the cost of the real estate agent, title insurance and closing fees.
For a successful deal, you have to know all the costs for the area where you are flipping the home, otherwise, it can diminish your profit margin quite significantly.
How to find good fix and flip deals?
The most difficult part of the Fix and Flip business, if to find a property cheap enough that will guarantee you to make a decent profit. You have to be on the look out and be ready to make an offer when the opportunity is there. Be the first one to submit it and make the best offer possible. Know before hand how much money you want to make on that deal and base of your offer on these numbers. Do not limit your search to a specific property. Use the MLS, foreclosures, short-sale, auction, FSBO and REO’s. Make the offer as attractive as possible.
How long can a fix and flip deal take from beginning to end?
For an experienced investor who is paying cash, the best case scenario such as already having the contractor and the real estate agent, it can take a minimum of 3 months. But most deals will take from 4-6 months, sometimes even longer if this is your first deal and do not have all the resources in place.
How to sell your Fix and Flip property?
To make it a quicker sale and most profitable, hire a professional real estate agent who will list the property according to its current market value. This is your best bet. Some sellers want to save money by selling the properties by themselves (FSBO). But according to the real estate association, “FSBOs accounted for 9% of home sales in 2012. The typical FSBO home sold for $174,900 compared to $215,000 for agent-assisted home sales."