Buying a property to renovate and resell on the market can be a very lucrative undertaking, but it does not come without its potential pitfalls. Like any other rewarding activity, solid preparation and information will help you make the right decisions and take the necessary precautions. 

Moreover, harnessing the knowledge of real estate investing and building key partnerships with good lenders are bound to make a positive impact. Here are some of the advantages and disadvantages of buying property to fix and flip.

Advantages

1. Big Profit Potential

A clear advantage of buying property to renovate and resell is that some houses can be fixed and flipped very quickly, with big potential in the way of profit. The profit margin of a successful fix-and-flip can be anywhere between $40,000 and $70,000 for the average residential home, which is a significant gain for the amount of work that may typically be required. 

Another benefit of fixing and flipping is the possibility of completing a turnaround in less than 90 days while earning a margin of around 20% on the property. The more renovation work the property requires, the more upside it usually has and the longer it takes to renovate.

2. You Can Select According To Your Needs

As a real estate investor, you can scout the market to find your desired flip house considering various preselected attributes like location, sale price, financing and property type. You can seek out the best deals on the market, knowing properties that require lots of rehab work are often priced well below their true potential market value. In addition, choosing a property that requires relatively small cash down payment for purchase will result in lower initial out-of-pocket expenses. The great thing about flipping homes is that you get to choose all of these factors before engaging in a fix-and-flip.

Disadvantages

Like all enriching endeavours, flipping homes does not come without its potential downsides. To reap the benefits of selling a house for profit, you will have to be responsible for performing a timely, On-budget and safe rehab project to sell the property. This will involve interacting with numerous parties like lenders, contractors, agents and buyers.

1. Cash

Securing the necessary financing to purchase property could be difficult unless you work with a trusted lender ahead of time. Plus, you’ll need enough cash on hand to cover all rehab costs with contractors and enough to cover all overhead costs that may arise. Don’t forget to plan for contingencies and conduct a professional inspection of a property before purchase. Finally, working with an experienced contractor will help you identify remodelling costs accurately to avoid gross miscalculations.

2. Time

Fixing and flipping properties efficiently is a full-time job, so don’t expect to do it half-heartedly. You’ll have to put in the time to build your vital relationships with lenders and contractors, as well as be active in seeking new properties and supervising the completion of the entire project. Keep in mind that you will have to shoulder all unexpected costs arising out of the project, making sure you have experienced people on the team who you can ask for advice if the need arises.

Real estate investing is not without its unique risks, but with careful planning, relationship building and diligent execution, it still provides excellent potential for making big profits in 2021.

Tips:

• You need to do your research well when chasing a renovation deal because, ultimately, the profit you make will depend mainly upon the price you pay for the property in the first place.
• Think about your exits strategies e.g. rent & hold or sell and subsequent holding costs and taxes.
• Be realistic and keep things in perspective to avoid renovation budget blowouts.
• Make sure you factor into your budget the purchase costs such as stamp duty (allow 3-5%, as this varies from state to state), legal fees (allow approximately $1,000) and inspection fees (approximately up to $1000).
• In addition, selling costs need to factor in as well. Think about breakeven.
• If you are planning to do the renovation yourself, think about the hours you will spend on the job, plus the cost of tools you will need to complete the job. What is your hourly rate? Can you earn more by going to work? Or by putting your money into the bank? Cost of rework?
• Workout cost of obtaining planning and building permits?
• Asbestos related issues and remedial costs.
• Most importantly, pick the right time of the market, the right area, and be highly organised.

Disclaimer:

Email: yasir@geelongpropertyconsulting.com