Buying a property with the intention of renovating it and reselling it on the market is a lucrative venture. But it comes with its own pitfalls. Before you start flipping a property you must be aware of the benefits of fix and flip real estate strategy. Real estate investors must have a vivid idea about the market and build up key partnerships with good lenders. It helps in building up a good impact. Along with its benefits, fixing and flipping real estate do have some risks also. Things can go downhill at any moment, here are some of the benefits which are worth taking that risk. In this article by Lilypads, we will discuss the pros and cons of a fix and flip real estate strategy.
Benefits of Fix and flip real strategy:
Fix and flip real estate can reap very generous rewards. Here are some of the pros.
1. Earn a quick profit:
One of the advantages of fixing and flipping houses is the ability to generate a good amount of money. And the allocated time must be limited. Fix and flip real estate properties can be of any class, size, or condition. Hence, fix and flip investors can decide how much effort they will put in to achieve a good deal on investment. If done properly then the return can be more than the U.S median salary. Thus, the most important thing is that the return comes in within a few months.
2. Understand the building process:
You can gain knowledge of construction by repairing, renovating, or remodeling a property. Through the building process, you can grasp the costs of materials, costs of various electrical and plumbing fixes. Furthermore, you can also gather information regarding structural flaws and environmental issues like molds, waterlogging, etc. Thus, this knowledge will help you to make more money in the future because you can handle a deal better.
3. Buyers insight:
Once you’ve accomplished one successful flip, you’ll have a better idea of what buyers want. Also how to identify value in new homes on the market. Hence, this will make future exit tactics easier and more efficient. Therefore, investors must aim to strike a balance between these modifications and what buyers expect from the property’s location.
4. Easily Accessible:
Fix and flip investment requires hefty investment capital. If you have little to no money then also you can go for fix and flip strategy. You only need the assistance of various financial lenders moreover with fix and flip loans. Through this, you get the money to finance your first property purchase.
However, if you run out of money while renovating a property you can easily get a loan through financial lenders. Hence, this can be life-saving. Therefore, for the approval of such quick fix and flip loans, you must sell the property within 12 months.
5. Enrich yourself professionally:
If you regularly buy a house and sell the house, you develop good negotiating skills. You also cultivate your crisis-management skills to delegate time and tasks.
A successful house flipping within a limited period of time helps you to enrich yourself professionally. While completing multiple deals successfully you can achieve a complete knowledge of the real estate investing industry. Furthermore, the idea of the local market and the construction trends help you to grow as a successful house flipper.
There is a personal sense of satisfaction and accomplishment while flipping a property that had no worth before. But selling it for a profit after adding new attributes to the house to boost its value.
6. Enhancement of Real Estate Network:
One of the most important aspects of real estate is networking, which can help you discover lucrative off-the-market opportunities. Along with, the profit margins that no other investor has. However, this network may also connect you with another real estate investor with whom you might collaborate on future ventures. Investing strategies have the major benefits for working with a partner. Since, it includes shared cash flow, shared loan amount, shared responsibilities, and also shared risks.
7. Appreciation:
Most assets depreciate over time. But when it comes to fix and flip strategy, value-adding leads to the forced appreciation of a property. Furthermore, using fix and flip loans you can renovate a distressed property into a new one which enhances the sale price
Disadvantages of fix and flip real estate strategy:
Like other highly rewarding endeavors, flipping homes also has its potential downsides. The major drawbacks of flipping a property are:
1. High Risk:
There are many factors that contribute to the loss of money. The unanticipated expenses which consist of building permits to contractor delays to renovations add up to the loss.
After renovation, the city may increase the property taxes which affects the selling. It also impacts buyers to rethink purchasing the property. The capital gains taxes are also hampered due to certain losses.
Money:
The longer you own the property, you lose money consequently. And the longer the house sits on the market, the more likely it’s that you will have to lower the value. Hence, reducing any anticipated profit by a 70% rule. Moreover, if the market suddenly drops then the sale price also drops subsequently. Hence, the investor has to compromise with the purchase price. Thus, there are certain expenses for which the investors have to be prepared.
2. Stress:
Stress has its own drawbacks on real estate flips. Hence, if you face a problem while finding the right property and properly anticipating the expenses you get delayed. Furthermore, dealing with the contractors also sometimes becomes cumbersome through which fix and flip strategies become late.
The Lilypads Bottomline
Real estate investing comes with its unique risks, but with proper planning, relationship building, and diligent execution, flipping houses can reward you with a quick profit. However, fix and flip real estate investments can be lucrative if proper time, effort, and money are put into the project. The key to a successful flipping investment requires a house with a solid foundation and executing it properly in order to reap the rewards.