One of the most popular methods of real estate investing is the fix and flip opportunity. This practice involves buying a distressed property, renovating it, and selling it for a profit. While it sounds simple, there is the risk of losing money on this type of venture, if the property doesn’t sell for the price you expect. For that reason, there are a few factors you should consider, before committing your resources to any fix and flip opportunity.
The Property Costs More Than You Realize
One reason a fix and flip property is so tempting is that the market price makes the deal seem too good to be true. That’s because it usually will cost you much more. In this type of investment, you will need to compare the money you’ll invest to the ROI you expect to regain upon the sale of the property. This means looking at how much it will cost to repair and renovate the home, as well as looking at the asking price. When it’s all said and done, will you be able to sell the home for more than you invested in its purchase and renovation?
Be Prepared for Unexpected Risks
A successful fix and flip relies on your ability to sell the home for more than you spent on it and, as suggested, this means choosing a property that won’t need a great deal of costly work. Even when you choose wisely, you may still uncover problems, after you purchase the property. Mold, plumbing problems, a damaged roof, and other issues can remain unseen, until you actually begin working on the property. This is going to raise the cost of your investment, which means you may make less money on the sale of the property.
Keep Up with Taxes and Insurance
Even though you only plan to own the property for a brief period, you’ll still need to keep the taxes and insurance premiums paid. It may take longer to sell the property than you expect, so saving money to pay taxes on the property is essential. It will be more difficult to sell a home that has owed taxes attached to it. Additionally, you’ll need liability insurance, even if you don’t plan to occupy the house. A “dwelling” policy will keep you covered in case anyone is injured, while on the property. This will be especially important, when you begin selling the property.
Fixing up a property to sell for a profit can be a worthwhile and lucrative endeavor, but that doesn’t mean it will be cheap or easy. As long as you prepare yourself for the risk of additional expenses and commit to seeing the process through, there’s no reason you can’t succeed. Doing your market research and working with a professional realtor can help you minimize your risks and enhance your profit potential.