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Fix and Flip Real Estate: Is it the Right Choice for Long-term Wealth?

There are several ways for investors to purchase real estate for profit in return. Whether you’re interested in buying rental properties, commercial buildings, or fix and flip real estate, there’s an investment strategy for everyone. Today, we’re going to go over fix and flip real estate and how investors can quickly earn a profit.

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What Is Fix and Flip Real Estate?

Whether you’re an investor or not, you’ve probably heard the words “fixer-upper” when talking about old or damaged properties. Fix and flip real estate refers to purchasing properties that need repairs or renovations at a lower price, fixing them up, and selling them quickly for a profit. 

For most investors and real estate lenders, selling a fixer-upper “quickly” typically means within 12 months or less. However, if it takes more than 12 months to sell the property, don’t worry. Most real estate lenders can accommodate projects that require a longer loan term.

Successfully renovating and selling a fixer-upper depends on several factors. For one, it’s crucial to create a realistic budget and stick to it. Additionally, you’ll want to purchase a property that will allow you to re-sell it at market value and make a profit. Finally, investors must come up with a renovation plan to follow to stay on budget and complete repairs on time. 

If you’re interested in fixing and flipping real estate but don’t know where to start, there are some of the most crucial steps for investors to follow.  

Steps to Flip a Fixer-Upper

Fixing damaged real estate requires a ton of time, effort, and money. As such, it’s important for investors to complete the following steps before diving into a fix and flip real estate purchase. 

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  1. Research the Market
  2. Find a Suitable Property
  3. Figure Out Financing
  4. Create a Plan of Action
  5. Hire Contractors to Help
  6. Renovate the Property
  7. Stage and Sell (or Rent) Your Property

Research the Market

The first step for any real estate investment is researching the market. Before finding a fix and flip property, you must examine the market of the community you’re looking to invest in. But, first, you need to know the profitability of a fixer-upper and how to recognize a good property deal. 

Then, investors should know how long it takes to fix and flip a property and fully understand renovation costs. That said, you may want to develop a comprehensive business plan to help you keep a record of expectations and budget timelines. 

Find a Suitable Property

Next, once you have a good business plan to follow, it’s time to choose a suitable property to purchase. You can find a property using a real estate agent or searching for real estate yourself. Either way, it’s crucial to thoroughly inspect each factor of the property. 

For instance, you’ll want to consider the potential risks, benefits, profitability, location, and local competition. Additionally, before you purchase real estate, make sure to walk around the property and identify what type of repairs it may need.

Figure Out Financing

Once you’ve found a property to purchase, you’ll need a way to finance it. That said, you don’t need a large sum of money to obtain real estate. Instead, there are a few financing options to explore. For instance, you could turn to private money lenders or use equity from other properties to obtain a home equity loan

However, it’s important to note that most fix and flip properties won’t qualify for a traditional mortgage loan. Since they are seen as riskier than conventional properties, fix and flip real estate are typically hard to finance. 

Hire Contractors to Help

Once you’ve obtained your property, it’s time to determine what repairs are needed. First, list which repairs are required, cost-effective, and will add value to the property. Then, hire contractors to help complete them. 

Finding a high-quality contractor is crucial in a successful fix and flip project. Instead of opting for contractors with the lowest bids, you’ll want to look at references, testimonials, and qualifications. If you’re unsure how to find a good contractor, ask other investors for referrals or look at websites such as Craigslist or Angie’s List.

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Renovate the Property

The most difficult aspect of a property renovation is not going over your allocated budget. Throughout the renovation phase, investors can be as hands-on or hands-off as they want. If you want to take a more hands-on approach, you can help contractors complete renovations. 

On the other hand, if you’d prefer to let your independent contractors complete repairs and renovations, that’s completely fine. The most crucial aspect of the renovation process is ensuring you don’t go over budget. 

Stage and Sell (or Rent) Your Property

Once your contractor(s) completes all the necessary repairs and renovations, it’s time to stage, sell, or rent the property. To make the property as desirable as possible, it’s important to clean and stage it. Luckily, if you’re an established landlord and need help managing your properties, you can contact your local property management company in Philadelphia

If you’re looking to sell the property and profit immediately, taking professional photos and listing them at a fair market price is important. On the other hand, if you want to become a landlord and rent your property to potential tenants, you’ll want to list the property at a fair price and highlight the benefits of renting. 

Pros and Cons of Fix and Flip Properties

Like any investment plan, fixing and flipping real estate has some advantages and disadvantages. If you’re looking to explore the pros and cons of fixer-uppers, read on as we discuss them below. 

Advantages of Fix and Flips

  • It’s a Good Way to Get Started in Real Estate- Although fixing and flipping properties poses a bit of a learning curve, it’s a great way to dive into real estate. After all, completing a property flip takes a lot of research, time, and effort. 

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  • You Can Profit Quicker- With other real estate investments, you won’t see significant profits for quite some time. However, when you fix and flip a property, you can see large profits within months instead of years. 
  • Fix and Flip Deals Offer Flexibility- The process of fixing and flipping real estate offers tons of flexibility according to your budget, goals, project timeline, experience, and priorities. You can also be as involved or as little as you’d like. 

Disadvantages of Fix and Flips

  • You Could Go Over Your Budget- Your success with a fix and flip property depends heavily on your budget. If you go over budget, you’re cutting into profits. 
  • There are Fewer Tax Advantages- Although real estate can offer tax advantages, fix and flip properties won’t have as many unless they are turned into rental properties. 
  • It’s Extremely Time-Consuming- Purchasing fix and flip real estate is very time-consuming. Even if you hire independent contractors, you’ll still need to supervise and ensure you’re staying under budget. 

What’s a Stress-Free Way to Manage Your Rentals?

Most landlords don’t stop at just one rental property. Instead, they continue to build wealth by purchasing more real estate to rent out. However, managing several properties at once can be extremely difficult for just one person. Luckily, you don’t have to!

Bay Property Management Group offers comprehensive rental management services to busy landlords, no matter how many properties you have. We’ve got you covered if you need help with maintenance, tenant screening, rent collection, and more. Contact BMG today if you need rental management services in Baltimore, Philadelphia, Northern Virginia, or Washington DC.