Is Fix and Flip Still a Profitable Strategy?
Is fix and flip still a profitable strategy in 2021? This guide will talk you through why you should continue fixing and flipping in the current climate.
In 2020, there were more than 53,705 homes flipped, whether they were single-family homes or condominiums. We know you’ve seen all the HGTV shows like ‘Flip or Flop’ that focus on what it takes to flip a home and get the most profit out of it.
In this guide, we’re going to start the renovation process and let you know if fixing and flipping a home will still pay off as we get into 2021. Are you ready to buy your first home to flip?
Don’t swap any cash until you’ve checked out our comprehensive guide about flipping a house.
Covid-19 and Flipping Houses
The first thing you’d assume when it comes to fixing and flipping a property is that it can’t be profitable since the emergence of the COvid-19 pandemic. There are several reasons you could think this starting with reduced inventory available to be flipped.
What we mean by inventory is the number of houses that can be purchased and flipped. From a seller standpoint, with more areas going into mandated lockdowns, the assumption is no one will be out and about looking for properties to purchase.
As a result of this assumption, many sellers removed their homes from listing sites. The reason for doing this is, so their homes didn’t stay on the market for extended periods without any interest from potential buyers.
Another reason sellers removed their homes from listing sites is to avoid coming in contact with others, reducing the possibility of catching the virus during a house tour.
Because of the number of homes pulled from the market, people looking to flip homes have found it increasingly challenging to find a property that’s worth investing in.
Without homes on the market, it means there has been a significant decline in deals made.
Housing Market and COVID
Covid has done wonders for the housing market, including causing mortgage rates to decline dramatically. Because lenders are reducing their rates, more people are on the hunt for homes that have become affordable.
This puts the need for houses in high demand and likely is making it easier for house flippers to offload the homes they’ve worked on for profit. There are some negatives to the increase in demand and the lack of available homes for sale.
Because of this supply and demand fluctuation, the available houses have price tags that are way above what they should be. The increase in price for house flippers is great because it means you get more money from the sale.
However, the downside is it could take you longer to find people willing to pay your asking price. So, the real question is will the traditional fix and flip property strategy withstand the test of time?
The simple answer is yes; for now, the fix and flip of houses will continue to thrive, and sales could increase as more people continue the hunt for their perfect home. With this information, we know you’re itching to start flipping homes and make a profit.
Flip or Flop
The point of purchasing and flipping a home is to purchase the home for a low price and turn a huge profit. There’s a recipe you can use to make the most of each property you purchase.
We understand you’ve probably got a good idea about the type of changes you can make to a home to increase its value. But, before you can think that far ahead, you’ve got to purchase a property.
Below we have a brief how-to that will make your flip as smooth as possible from beginning to end.
Search For the Right Real Estate Deal
Before you can purchase a home to flip, you’ve got to know where to look for the right real estate deal for you. As a flipper, you need to find a house that’s at the right price because the name of the game is profit.
The last thing you want to do is put more money into a home than it’s worth. There are several ways you can find properties to purchase, including:
- Attending real estate auctions
- Checking out home foreclosures
- Short sales
- Homes owned by the bank
- Real estate listings
The number of deals you can find in these places alone are endless. If you’re using the internet, you can easily filter the options you see. For example, you can search for listings that have three bedrooms and two bathrooms to purchase.
Or you could purchase and look for homes based on their location and the type of property it is.
Look Into Financing Options
If you’re starting out in the business of flipping homes, you’re going to need capital to do everything you need to do. There are several financing options you can use.
They will ensure you’ve got the funds needed to purchase a home and make the necessary renovations to it.
There are several fix and flip loans you can look into like:
- 203k loans
- Private money loans
- Real estate crowdfunding
- FHA mortgage loans
A 203k loan is also known as a renovation loan and not only helps with the purchase of a home, but it also provides funds for the renovations that will be made. To qualify for this loan, you’ll have to meet all the lender’s requirements and have a property that needs some upgrades to be made.
Some financial institutions aren’t willing to lend money to house flippers, but you can always look into a private money loan. This type of loan is money you get from people like family or friends.
These loans are made with the trust of the person loaning the money to you, getting what they loaned back. Real estate crowdfunding is another way to get the capital you need to pay for a property.
Crowdfunding is when a group of investors put their money together and use it for a specific project, in this case, the home you want to flip. It’s essential to know that the platform you used to do so will take a portion of your earnings as payment if you’re crowdfunding.
Know the Cost of Closing and More
Before you purchase a home, you need to consider several aspects of the deal, such as the closing cost and fees you’ll have to pay. A huge factor to think about when it comes to the cost of a home is the repairs needed to be completed.
Keep in mind that the more renovations a home needs, the longer it’ll take you to flip the home and put it back on the market. You must have an idea of what it’ll cost to perform each renovation because that’s more money out of your pocket.
Some flippers contract other companies to complete the renovation while others complete them personally. It all depends on what your skill set is and what you’re able to accomplish.
You’ll also need to think about holdings fees, including insurance, maintenance, taxes, and more. The reason you need to know these things is that you’ll be responsible for paying them if you’re not able to sell the home sooner rather than later.
ROI stands for return on investment, meaning you need to look for ways to maximize your profit. You want to think about return on investment beforehand because you have to pay back investors, and you want to ensure the profit you walk away with is more than a little bit.
Depending on the financing option you’ve chosen to fund your project, it will eat into the overall profit you make.
What to Avoid?
While several things go into fixing up a home for sale, there are several mistakes you’ll want to avoid. The first being not giving yourself enough time to complete the project.
Once construction on the home starts, you’re going to be spending every waking moment you have fixing the home, especially if you’ve got another job you need to work each day. After construction, you’ll need to have inspections performed to ensure your home can be put on the market.
You need to ensure you invest the right amount of time into completing your project. Another mistake you should avoid is not having enough knowledge or skills to flip a house.
While some people see it as easy money, it’s because they don’t understand how much work it takes to get the job done. You’ve got to be handy and enjoy doing things like putting in drywall or laying flooring.
Get Started With Your Fix and Flip Project
When it comes to a fix and flip project for the foreseeable future, it will still be a lucrative business to be in. You need to do several things to start your project, like finding the right property to purchase.
And don’t forget you need to figure out a way to finance your fix and flip. Are you still in search of capital to help you buy the right home?
If so, there’s only one option that’s right for you. It’s time to contact Orchard Funding; we’ve got several programs that will help keep your flip from flopping.