Buy, Fix and Flip – made popular through numerous television shows, the “fix and flip” method of real estate investing is often seen as fun and exciting, fun and is the type of investing that comes to mind for most people.
Fix and flippers find a property that needs repairs or renovation, they perform those renovations and then sell the property at a high enough price to recoup their initial purchase cost, the cost of renovations and repairs, and if it goes well, profit that they can add to their pocket.
The Fix and Flip investors level of involvement in this process can vary widely and will be determined by the amount of time, effort, and skills they have and what they want to bring to the project.
If an investor has the skills to do the work themselves, they may take on a majority of the project. As an investment strategy, the investor will need to weigh the costs of hiring out the work, against the time it takes to complete the work.
As an investors experience grows and they are attempting to scale their business to a higher level, the investor is usually hiring out most of the work to contractors and sub-contractors so that they can turn around the property as quickly as possible and keep holding and carrying costs to a minimum.
Amazingly, most of these renovations can be completed within a 30-minute window if you are benchmarking against the TV shows!
Successful Fix and Flips
There are a number of factors that determine if a fix and flip investment will be successful. Some are within the control of the investor, and some are not. These include:
- Buying the property at a low enough price to be able to invest the rehab dollars, cover transaction costs such as realtor fees, and cover the costs of loans/funding and being able to sell the property at a high enough price to make a profit.
- Having reliable contractors and tradespeople to efficiently and competently complete the rehab work
- Accurately estimating the costs of rehab and renovation work before purchasing the property
- Accurately estimating what the After Repair/Reno Value (ARV) of the property will be when it’s ready to be sold
- Risk of potential changes in the market (home values, financing costs, etc.) in the period of time between buying the property and having it ready to sell.
Finally, it’s important to realize that “Buy, Flix and Flip” is an investment strategy that is repeatable, but short term. Your goal as the investor is to purchase as cheaply as possible, then renovate again as inexpensively as possible and then turn around and sell the property at the highest possible amount.
As one of the most active investing strategies, this method has the ability to earn the investor significant income in a short amount of time if all goes well. It does carry significant risks that need consideration as noted above and most importantly, if the investor is not buying, fixing and flipping repeatedly then there is no source of income. In that sense, it is similar to a “job” – if you’re not working, you’re not earning.