Fix and Flip Real Estate Strategies

Fix and flip investing is an ever popular way to make a solid return in the world of real estate. The average fix and flip project takes anywhere from 3 to 6 months to complete, and provides an average return of 25-30%. Investors love this asset class because it helps them generate enough capital to easily branch out into larger, more long-term projects in the future. Have you been considering a home flipping project for your next investment? Here are some key strategies for finding success with fix and flip real estate.

What is Fix and Flip Investing?

Let’s start by going over the basics. Home flipping involves buying older or neglected properties, renovating them, and selling them shortly after for a tidy profit. This strategy is attractive for both beginners and seasoned investors, since flips can be completed quickly and the returns you receive can help you place a down-payment on other, costlier projects. Aside from offering a lucrative return, investors can make use of sweat equity, or basically, doing some of the renovation work themself to save on costs and further improve their returns.

Laying the Groundwork for Success

If you want to make sure your fix and flip project is profitable, there are a few things you should take care of first:

1. Understand the Local Market: Take some time to conduct thorough market research, including comparing the stats on various markets, and identifying trending neighborhoods that would make for a good investment.
2. Set a Realistic Budget: Make sure you create a detailed budget for your project, including acquisition, renovation, and holding costs. This will help you calculate your return more accurately and prevent you from investing in less profitable ventures.
3. Secure Financing Early: Getting preapproved for a loan can help expedite your investment timeline so you can complete the project quicker. Be sure to compare various lending options including private and hard money loans.
4. Build Your Team: A quality team is the key factor that will help you solve any problems you might encounter. Do some research to find a quality contractor, an experienced real estate agent, and a trustworthy lender with experience in the fix and flip space.

Avoiding Common Fix and Flip Pitfalls

There are some common issues investors run into with fix and flip projects, and it’s crucial that you’re aware of them so you can know how to avoid them. What often happens is that investors will overestimate the ARV (after-repair value) of their property, only to have to lower their final sale price and receive less of a profit. It’s better to set realistic expectations for the project, and conduct market research by looking at completed sales of comparable properties. In a similar vein, investors tend to underestimate total project costs, and end up having to pay out of pocket for unexpected repairs or expenses. That’s why due diligence is such an important step of the fix and flip process.

Additionally, projects can suffer from inefficient time management, leading to higher holding costs that eliminate profits. The longer it takes to complete renovations or sell the property, the more you will be paying in expenses like property taxes, loan interest, utilities, and home insurance. Take care to plan and execute your strategy quickly to avoid this mistake.

Tips for Conducting a Profitable Fix and Flip

Here are some key tips for getting the most out your fix and flip investment:

1. Find the Right Property: Identifying an undervalued property will make it easier for you to make a good profit on the investment. Besides browsing the MLS, take a look at alternative sources like foreclosures or public auctions to find properties at discounted prices.
2. Conduct a Comprehensive Inspection: Although you might think you’re getting a good deal on a property, it’s always worth getting a professional inspection to help you identify major issues with it. Some problems, such as structural or flood damage, can be very costly to fix and will ruin your investment’s return. These properties are better off avoided.
3. Plan Renovations Strategically: Certain home improvements will have a better return on investment than others. Focusing on high-traffic areas like the kitchen and bathrooms will have the most impact, as well as improvements to the home’s exterior to maximize curb appeal. At the same time, you don’t want to over-improve the home beyond the neighborhood’s average market value.
4. Manage the Renovation Process: It’s important that you carefully monitor the progress of renovations, so you can ensure that your budget and timeline is followed appropriately. Be sure to set clear timelines with your contractor, and check in with them regularly to avoid running over budget, or work around any possible delays.

How to Sell for Maximum Profit

We want to end with some advice on how to sell your property for maximum profit. Staging can be a good way to catch the attention of browsing buyers and stoke demand for your property. If you don’t want to spend time purchasing and arranging furniture, you can use virtual staging software to help showcase the property’s potential. There are also various tax benefits you can utilize to reduce the taxable income you receive from a flip. For example, a 1031 exchange can be used to reinvest your returns and defer the taxes from them. Be sure to consult with a professional tax advisor to explore your deduction options.

In terms of financing, it can be worth exploring various loan options, such as short-term private loans which are more suitable for fix and flips. These loans also have the ability to provide additional funds for renovations, so you don’t have to dip into your own personal funds to pay for them.

RCN Capital

The easiest way to save on your next investment is to obtain financing from a real estate lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you are looking to finance a fix and flip project, RCN Capital has competitive loan options available.