how to reduce risk when fixing and flipping properties
Research, Research, Research
Thorough research into the market in which you plan to fix and flip is 110% one of the most crucial moves to be made when starting out. Seeking mentorship or building relationships with agents or experienced flippers in the area in which you plan to buy is a good first step to protect yourself from taking on a bad investment. Be sure to study the market as well and familiarize yourself with home prices, how much they sell for in auctions, how much renovated homes go for and general condition properties are selling in. Always keep in mind the ARV (After Repair Value) when purchasing a flip so that you know how much the value should be on the property after rehabbed. When rehabbing, rehab with your buyers in mind. Build to their wants and needs to expedite the selling process.
Purchasing a fix and flip that requires full-blown construction may not be the best idea for a new investor. It will likely require permits and costly repairs that will dig deep into your potential profits. Finding properties that are way undervalued and only require smaller tasks like kitchen repairs, carpets, lighting fixtures and other things like landscaping will make it easier and more economical for you as a new flipper. Speed, in and out is important in flipping. It’s important to price the property for profit, but you also don’t want to get greedy. Remember, the longer you hold onto the property, the more money you’re actually eating than taking in. When pricing, stick to the true value and be careful not to price too low or too high. Sometimes when you price it lower, you’ll receive competing offers, but that’s not always 100 percent true.
When selling a fix and flip, having multiple exit strategies is key to making your profit at the end of the day. Be aware of your breakeven point in case things go awry and it’s becoming near impossible to sell. Like stated prior, if you drop the price a little it can possibly create competition which may end up working in your favor. If you’re willing to be patient you can lease the property to someone who can’t qualify for a traditional loan so they give you a down payment and pay monthly rent until they can qualify for a traditional loan and buy the house outright. You also can turn it into a rental property as well, which can create a great ROI long-term.
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