Watching Flip or Flop made me think about how much risk is involved in starting on fix and flips. While stars Tarek and Christina El Moussa seem to bring in $50,000 or more in profit on each project, those results might not be as typical as the show would lead you to believe.
Finding a Property
Understanding the market is arguably the most important part of fixing and flipping homes. Even experienced real estate agents can struggle to find houses with potential for big fix and flip profits, so as a new fix and flipper, you are at a big disadvantage.
Each city and neighborhood is very different, and finding a house just a few blocks away might have a very different clientele than one you have already spent time comparing to the market. Comps are key to understanding if you can really make money, or if you will go bust on a project.
Knowing the Right Contractors
Once you buy the right property, you will need a team you can trust and count on. Contractors are in business for the same reason as you, making money, so finding someone you can trust to do the right job at an honest price is incredibly important in your success.
If you already know a contractor you trust, you are in better shape than most. You can also look to your agent for a referral, or ask around to friends and family in the area who have done work on their homes and been happy with the budget and the quality.
Keeping in Budget on Rehab
The dream situation for a fix and flipper would be finding a home well below market price with only basic cosmetic damage. However, with everyone looking for that type of house, you might find yourself on a unicorn chase looking for a perfect home with minimal work to make a big profit.
Instead, you are more likely to need to do a lot of work to fix up the property. And as Tarek and Christina find on nearly every episode, home conditions are not always what they seem. Instead, you might find hidden structural, foundation, plumbing, and electric problems hiding behind the walls that can cost many thousands to repair.
Rehabbing a house for sale at a profit is a fine line. You want to spend enough to make the house draw big dollar bids, but don’t want to spend so much that you end up losing on the property.
Money to Be Made with Big Risk
Fix and flips come with a huge financial risk. You can expect to put in hundreds of thousands of dollars, and you won’t know until the end if you will get that money back. Before you start to invest in fix and flips, consider moving into a home that you can work on and fix up while residing on the property. That way you are minimizing your costs of holding two properties at once. And, if you do lose a little cash, at least you had a nice place to live while working on your latest business venture.