The process of fix and flip renovation involves buying a property for a low price, renovating it, and then selling it for a profit. Television property programs have taken this method of investment to the masses. Yet these glamorous media treatments often gloss over the hard work and financial risk involved. Below, we give our three essential tips for fix and flip renovators.
Understand the Seventy Percent Rule
The seventy percent rule is the mantra of fix-and-flip renovators. It is a rule that helps house buyers understand what properties are worth buying and renovating for profit and which are best left alone. It states that buyers should pay no more than 70% of a property’s after repair value excluding the cost of repairs necessary for the renovation.
When working it out, take the predicted value of the sale after renovation. You should then calculate 70% of this amount and subtract the repair costs. The value remaining is the total that you should pay. Of course, this is only a guideline. The home may sell for more, material costs may change during renovation, or myriad other factors could alter this. However, by using this approach you should be able to turn a profit if no unforeseen circumstances occur.
Move Quickly and Smartly
When you are looking for the right property, make sure you have the cash ready and waiting. This gives you some freedom when the time comes to make an offer, as it can be troublesome if you need to raise capital quickly. If you do, consider using other properties in the portfolio to finance your new project. Plenty of companies will help sell house fast and if you do your maths correctly, it could pay off if you work quickly enough. They will often have sales closed in as a little as seven days, allowing you to free up money for your new project.
However, don’t let money in your account burn a hole in your pocket. Keep the money sitting and take your time, looking for properties carefully. Educate yourself about local markets and where properties are in demand or rising in value. You may find out about developments like job opportunities coming to an area that could make it more desirable.
When you do have the right property, lead with your head and not your heart. Remember it is an investment, not a property that is going to be for your habitation. Plan out your costs along with a timescale, and allow a 10% overspill for any cost rises or unforeseen circumstances.
Factor Holding Costs into a Budget
One factor many first-time house flippers overlook is holding costs. These are the costs involved simply from owning the property. This can either be in the period you are renovating it or trying to sell. Typical holding costs include bills, load repayments, taxes, and insurance.
Don’t be afraid to change tactics during a renovation. You may find some changes are costly or impractical. Other reasons to change plans are if you find the property hard to flip and decide to rent it out for a year. There is no shame in this, as markets and plans can change quickly.
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