Fix and flip businesses can be highly profitable, but it is important to choose your projects wisely so you don’t overextend your resources. Before you purchase your next fix and flip property, keep these five important considerations in mind.
1 – Location
The location of the property is not only important because of its potential for profit, but it is also important to consider how convenient the property is for you and your contractors to access. Consider how much time it will take you to travel to and from the work site. This consideration is especially important if you are juggling multiple fix and flip projects in several different locations. If it is not feasible for you to visit your fix and fix properties in a work day, you may want to reconsider making the purchase. On that same note, if traveling to and from the work site requires you to pay too much in fuel costs, it may not be worth it.
2 – ROI
Does the ROI on this fix and flip property meet your parameters? Consider how much money you’ll spend on the purchase price, the costs of repairs and improvements, taxes, fees, interest payments, insurance and emergency expenses. Compare this amount with the amount of profit you expect to make off the sale of the home. Obviously, there is a significant amount of risk involved in flipping homes, and you may not be able to get the price you want, or the home may not sell as quickly as you hope. Keeping these uncertainties in mind, don’t make your purchase unless you feel that the ROI will meet the parameters you set for your business.
3 – How Big Is the Remodel?
Before you purchase a fix and flip property, consider the size and scope of the remodel. Can you do the work by yourself or do you need to hire contractors? How long will it take to complete all of the necessary renovations? Of course, unexpected challenges may arise that will add additional expenses or completion time. Be realistic with your budget and time constraints before you make the decision to purchase a fix and flip property.
4 – What’s Your Timeline?
How quickly do you need to flip the property in order to make a profit? It’s important to pay attention to the seasons when you’re in the fix and flip business. Before you purchase a property, think of how long it will take you to complete the renovations and put the property up for sale. How quickly are similar properties selling in the area? For a fast turnaround, choose a property that has a good chance of selling quickly. Many prospective homeowners seek properties located near good schools and that are in areas with low crime rates.
Will it be a good time of year to make a quick sale? Weather conditions may also affect the timeliness of the remodel and the availability of contractors. Historically, home sales tend to be slower in winter months, especially in regions that have true winters. People are less likely to be on snowy and icy roads driving around looking at properties, and holiday entertaining and travel keep people occupied. Conversely, homes tend to move faster in summer time.
5 – Are Your Expectations Realistic?
There’s definitely something to be said for pushing outside your comfort zone. However, when it comes to fix and flip properties, it’s easy to get in over your head. Make sure your expectations are realistic and that you don’t overestimate your capabilities. If you typically perform $10,000 in renovations on a $100,000 property, be realistic before you buy a $200,000 property that needs $50,000 in renovations. Are you prepared to tie up that much cash? There are significant differences between a $10,000 renovation and a $50,000 renovation.
Are You Ready to Buy? Let Us Help.
If you need some cash to buy a fix & flip property, Gorilla Capital can help. Check out our Fix & Flip Calculator to see how a typical deal with us works. You can enter the property purchase price, estimated rehab costs, sale price and hold time, and we’ll give you a detailed breakdown of how the final distribution and payout will take shape.