Fix and flip is a term used to describe the purchase of property, solely for renovation and further sale at a profit. Its popularity has boomed due to the rise of television renovation shows. While they often under-play the hard work involved, it is a genuine way to increase your capital and start a thriving business.
The 70% Rule
This rule is a simple but extremely effective one. It is even more important if you are starting your first fix-and-flip journey. The rule is that when buying a property, you should spend no more than 70% of the property’s repair value minus the cost of repairs on it.
This involves knowing the after-repair value (ARV). When you find a property, do some serious research into how much properties in the area have sold for. Target ones that are in a similar renovated condition. If you want to play it safe, estimate them at the lowest value.
For example, imagine you find a property that could sell for £500,000 when renovated. 70% of this is £350,000. You deduct the estimated cost of repairs, which is £50,000. In this scenario, you should pay no more than £300,000 for the property.
Be Ready to Move Quickly
The right property may take a while to come along. You should never buy a place just because the money is burning a hole in your bank account. Yet when the right one does come along, you need to be able to move fast. That involves having your funds in place.
If you need to raise capital and already have a property, then you may consider an online home-selling company. They are traditionally used when people want to offload properties quickly or need easy sales, perhaps if they are selling a house in probate. They have several advantages. This includes turnarounds in as quick as seven days and the ability to choose completion dates. They can also be a lifeline if you buy a property and then have unforeseen repairs to make that take you over budget.
If you buy at auction, also keep in mind that many of them will expect you to pay a large portion of the property value on the day as a holding fee. You will also have charges on top of this that may cut into your funds, so make sure you have it all to hand.
Never Underestimate Time and Skill
Fix and flip is a fairly foolproof plan. Even if you don’t sell right away, you can always rent the property out and wait for a house to appreciate. Yet two factors can derail even the most solid of plans. Never underestimate the amount of time it will take. You can guarantee that most timescales run over, so it is not advised if you need to buy and sell to a strict deadline.
Secondly, don’t underestimate the value of skill. You may think you can do the work yourself, but this can often result in a half-done job, particularly when time is against you. In some cases, getting a professional is the only way.
Do your homework and tread carefully. The right home will come along and before long your fix and flip business will be thriving.