Fix & Flip – Fix & Flip is one of the most well-known strategies for real estate investors to increase equity through real estate. It involves the simple principle of real estate “flipping”. You buy a cheap property, effectively flip it for value and sell it to make a profit. As simple as the principle is to understand, in practice the strategy can be complex and tricky. All about the fix & flip strategy with real estate in this post.
Fix & Flip describes a strategy of real estate trading in which a property is bought cheaply, then upgraded cost-efficiently through refurbishment or renovation measures, and subsequently sold for a higher sales price. The profit is the difference between the selling price and the purchase price including the revaluation costs.
Fix & flip is a risky variant of real estate trading, since the goal is a timely sale and not a long-term return.
Fix & Flip enables a short-term increase in equity.
Fix & Flip in a nutshell:
Real estate trading strategy
Buy, Upgrade & Sell
Gain profit through sale
What are the advantages and disadvantages of the strategy?
Advantages of Fix & Flip
The Fix & Flip strategy offers several advantages, especially for beginners. It allows you to make quick profits, especially when real estate markets are rising and to enter the real estate market with a small initial investment. You also gain experience-based knowledge about the real estate market and renovation processes.
The advantages summarized:
Quick, short-term profits
Low initial investment
Experience in real estate trading and appreciation
Disadvantages of Fix & Flip
However, the strategy also brings disadvantages. For example, you always have a high risk, especially in case of unforeseen costs or delays during the renovation. Fix & Flip is also a time-consuming process, especially when it comes to finding suitable properties, monitoring the upgrade and marketing the property.
You need expertise and experience in real estate trading and renovation to effectively make a profit. And competition in the market is increasingly complicating the chances to sell properties.
The disadvantages at a glance:
High risk due to costs and delays
Time-consuming process of search and marketing
Efficient upgrading as a prerequisite
Increasing competition makes trading more difficult
Let’s look again in detail at the three main steps of the Fix & Flip strategy.
Fix & Flip property purchase: Market analysis and financing
The first step for your Fix and Flip plan is to find a suitable property. You must pay attention to the condition and location of the property. The condition of the property will determine the costs incurred and the duration of the upgrade.
The location plays a more extensive role.
If the property is in a busy location, the purchase price is higher, but you have a higher demand. If the property is in a less favorable location, the purchase price will be lower, but the sale may be delayed because the demand for these properties is lower.
It is therefore important to conduct a detailed market analysis and check properties on site. This way, several properties can be compared specifically according to your criteria and the right property for your fix and flip plan can be found.
The criteria for a Fix & Flip property at a glance:
Real estate market analysis & comparison
Checking the condition of the property
Find object in an optimal location
Once a suitable property has been found, it must be financed.
Fix & Flip Financing: Banks & Risk Appetite
How you finance your Fix & Flip strategy is up to you. In most cases, you will have to rely on the support of external lenders. Banks are a good choice. Which bank will finance your Fix & Flip plan depends on their risk appetite. Since Fix & Flip is associated with high risks, some banks decide against financing Fix & Flip.
You can find out everything about Fix & Flip financing from our partners:
After the successful acquisition of the property follows the upgrading.
Fix and flip property upgrade: refurbish & modernize
The efficient upgrading of the property plays the crucial role in shaping the profit margin. Many Fix & Flip properties require renovation or refurbishment. These improve the quality of life for the residents and also increase the sales price. You should have already determined which measures are explicitly required during the substance check.
The important thing in upgrading is planning.
Proper planning of costs and time will allow you to select the necessary measures and include additional delay.
You can read about how exactly to upgrade your property for your fix and flip plan in this post:
After the upgrade, the property must eventually be sold.
Fix and flip property sale: Preparation & Valuation
For a successful fix & flip strategy, the sale plays just as crucial a role as the purchase and appreciation of the property. The sale is decisive in the end about the real profit you get from the whole effort. In order to sell the property it must be offered. For this, valuations and price estimates are necessary.
Architects or craftsmen can already evaluate the property during the upgrading measures. This provides you with a clear assessment for the sale. In addition, the early assessment enables you to produce the advertisements and announcements promptly. Thus, interested parties and demand can be found at an early stage.
The sale of the property again at a glance:
Sales as a decisive factor of profit
For the sale the property must be offered
Evaluation by architects & craftsmen
Early placement of advertisements and announcements
In addition to the simple principles of selling, the Fix & Flip strategy also includes other factors. You can find out what these are in the following detailed guide:
The Fix & Flip allows you to either enter the real estate business or continue to grow your capital as an experienced real estate investor. Keep in mind the high risk that the method entails of losing time and profits. Also, the fix & flip is a short-term process. You are using real estate as a sales property, not as a long term income property. This in turn allows after a successful “flip” of a property to directly start the next project.
For a more extensive overview and depth on the entire Fix & Flip, visit our partner. Here you will learn more about the tax burdens, the control of the building fabric, as well as the exact cost accounting for the entire plan.
