One of the most lucrative business models in real estate is the fix and flip model. Although foreclosures are on the decline, the market is still on the rise and it is a good time to get into the game. Read on to learn the seven steps for success.
Fix and Flip Step #1: Build a Team
Contrary to what some infomercials might say, fixing and flipping is not a solitary task. There are several key people who you need on your team to ensure long-term success. Key team members include a CPA, an insurance agent, contractors, a real estate attorney and real estate agents.
Fix and Flip Step #2: Look for Properties
Once you have found real estate agents you can trust, they can provide access to listings that you may not easily find on your own. Also, they can provide inside information on properties that are soon to come onto the market, giving you an edge over competing investors.
Fix and Flip Step #3: Determine the Asking Price
When evaluating a property, look at others in the neighborhood that have sold recently. These are referred to as “comps.” For an accurate picture of current real estate values, it is best to only look at properties that have sold within the last six months. Once you have this information, you will be able to determine the “After Repair Value” of your property, abbreviated as ARV. Also, many people use the “70% rule.” This means that your buying price should not exceed 70% of the ARV.
Fix and Flip Step #4: Pull the Trigger
Once you have done the necessary research with your real estate agents and contractors and you have determined you can purchase for 70% or less than your target selling price, it is time to make an offer to buy the property. It may seem difficult to acquire properties at a low enough price to ensure a profit. One way to overcome this hurdle is to realize if you keep making offers, you will eventually close profitable deals.
Fix and Flip Step #5: Get the Money
For many people the main hurdle in flipping houses is borrowing money. Remember that there are many sources for borrowing money. Besides banks, you could also look at private lenders, hard money lenders, business partners, or other people you know who would like to profit from the deal.
Fix and Flip Step #6: Fix It Up
Another challenge of the fix and flip process is the rehab costs. One way to keep expenditures down is to create a budget repair form to keep track of all the repairs and refer to it when getting estimates from various contractors.
Fix and Flip Step #7: Sell It
This is where you finally reap the profits you have earned for all your hard work. The easiest and quickest solution is to sell through a real estate broker. If you want to avoid the broker's fees, you could sell it yourself, but it will require a lot of time and marketing effort.
Parting Advice: Stay on a Timeline
The whole process of buying, fixing, and selling a property should take between three and seven months. To maximize your profits, keep this timeline in mind and make wise choices when choosing contractors and real estate brokers. These team members are key to expediting your fix and flip process.