Buying and Selling a Fixer-Upper for New Investors
Should I Buy a Fix and Flip?
If you’re new to the real estate game, fixer-uppers can be a great way to get started. They’re usually cheaper than turn-key properties. They can be a real gem with some elbow grease (and maybe some professional help). But finding the right fixer-upper and then successfully flipping it can be tricky. Here’s a quick guide to get you started.
What is a Fixer-Upper (aka Fix and Flip)
A fixer-upper is a property that needs some TLC – usually in the form of repairs, updates, and renovations. Many times, fixer-uppers are older homes neglected or abandoned. They can also be properties that were never finished or damaged (think: fire, flood, or another natural disaster).
Why Invest in a Fixer-Upper?
Fixer-uppers offer an excellent opportunity for investors to get more bang for their buck. With some work (and maybe a little luck), you can purchase a property below market value and then sell it for a profit after making the necessary repairs and updates. Of course, there’s always the potential that things could go wrong. Maybe the repairs.
5 Tips for a Successful Fix and Flip
1. The Right Property is Everything
The first step is finding the right property. You’ll want to look for something that needs cosmetic repairs rather than major structural work. The more minor the repairs, the easier (and cheaper) the repairs, and the quicker you’ll be able to turn around and sell the property.
2. Hire a General Contractor
Once you’ve found a property you’re interested in, it’s time to get professional help. It’s wise to hire a general contractor who knows the ins and outs of fixer-uppers. If the property needs significant repairs, they will estimate the repair costs. The estimate provides the information you need to make your best offer.
3. Get an Inspection
Even if the property appears in good condition, you’ll want a professional inspection. An inspector will look for any hidden damage that could cost you more money in the long run. In some cases, the cost of repairs may be too high, and you’ll need to walk away from the deal.
What Do Home Inspectors Look For?
Home inspectors will look for any damage, no matter how small. It’s important to know this so you make a valid offer.
Some Common Issues:
– cracks in the foundation
– water damage
– pest infestations
– faulty wiring
– and much more.
When you make your offer on the property, be sure to use the information from the inspection.
4. Leverage Fix and Flip Loans (aka: Hard Money Loans)
Rookie investors often don’t have the cash on hand to buy a house outright. So, they turn to private money lenders who specialize in investor loans. Hard money loans are asset-based, meaning the property itself secures them. They are helpful as a traditional mortgage for an investment property would require a large sum down. The loans only require 2%-3% down, making more sense for the average investor.
5. Selling the Property
Once the repairs are completed, it’s time to sell the property. You’ll want to work with a real estate agent who has experience selling fixer-uppers. They will be able to help you price the property competitively and market it to buyers who are looking for a project.
With some planning and knowledge, buying and selling a fixer-upper can be a great way to start real estate investing. Just remember to do your homework, hire the right professionals, and budget for all costs associated with the project.
Other Costs to Consider
In addition to the purchase price and repair costs, there are a few other costs to consider when buying a fixer-upper. These include:
- Permits and Fees: You’ll need to budget for permits and fees associated with the repairs.
- Carrying Costs: If it takes longer than expected to complete the repairs and sell the property, you’ll need to factor in the cost of carrying the property, including taxes, insurance, and mortgage payments.
- Unplanned Repairs: Budgeting for unplanned repairs is always a good idea. No matter how well you inspect a property, there will always be surprises.
The Bottom Line
Buying and selling fixer-uppers can be a great way to make money in real estate. But it’s important to do your homework and work with professionals to ensure a successful flip. You can make a tidy profit on your next fixer-upper with the right property and a little elbow grease!