How to Calculate the Value of a Fix-and-Flip Property
One entry point into the real estate market that many industrious entrepreneurs are choosing is the fix and flip approach. This method refers to when you buy a house that needs some work at a low price, make the necessary repairs and improvements and then sell it the home at the current market value to make a profit. This business can be risky since it is difficult to accurately estimate how much money it will cost you to get the house ready for resale. Also, the housing market is prone to unexpected dips, so you find yourself having to hold on to a property for longer than you had planned. However, with experience and a little luck, finding the right fix and flip opportunities can provide a rapid path to success and substantially improve your cash flow.
Finding the right properties can be tricky. You must learn how to identify different problems and quickly estimate repair costs. If you do not have much experience with home construction and repairs, you will need to associate yourself with an experienced person to help you with this. Whether you hire an expert or find a skilled business partner, realize that understanding that what goes wrong with houses and how much it cost to repair them is the cornerstone for success in the fix and flip business. Hidden problems that go unnoticed to the untrained eye can end up destroying any profit potential in a deal you may have thought was a sure thing. So, bottom line, get some help or get some extensive training in home inspection and construction methods.
You have to decide on the types of deals you are going to go after for your fix and flip projects. You can find low-cost houses that could end up being expensive nightmares once the repair process begins. Homes that only need touching up or minor repairs will cost more to buy, and the profit you make will be smaller. Somewhere in between those two extremes lies your sweet spot. Your goal is to find houses that need repairs, so the price is low, but are not in such bad shape that they become a money pit. It is the projects that can be purchased for as low as possible, fixed up with less expense and hassle and sold at the market value to bring you in a nice sum at the end of the deal. If you can sell the house below its market value and still make a good profit, that’s all the better because it will usually mean a quick sale.