Is a Fix and Flip House a Good Investment?
Flipping property has gained a lot of popularity in recent years. People with little or no experience investing in properties have reaped considerable gains. With some careful planning and hard work, you can find a diamond in the rough and make it sparkle. However, you need to have some realistic expectations about flipping. Furthermore, you have to thoroughly analyze what you’re getting into to determine whether it will be a worthwhile investment or a long-term headache. Here are some vital questions that you should ask yourself when you’re deciding whether to flip a property.
Are There Outstanding Liens?
When you buy a home with anything less than perfect title, you may have difficulty getting a fix and flip loan. Prospective buyers may back out in the closing process once a hidden lien is revealed. Any purchaser will likely take title secondary to any existing obligations, including you. If you take title to a property with defaulted mortgages or liens, you may find yourself upside down on it before you begin any work. Get help to conduct a comprehensive title search and research any available records about the previous owner.
What Is the Housing Market Like in Particular Area?
If relatively little work is necessary to beautify a home that’s listed at a great price, you may reasonably assume that you can sell it for a lot more than you paid. Nevertheless, you need to get an accurate sense of what comparable homes are selling for in the area. It may be that even outstanding homes aren’t going for as much as they used to in years past. Do a market analysis of nearby homes so you can project your returns as closely as possible and get the right amount of financing for a fix and flip loan.
What Should Your Contingency Be?
In renovations and remodeling, it’s almost a rarity for things to exactly as planned. After you begin work, you’re bound to run into some setbacks and surprises. Some issues will mean you need more money than you have available from a fix and flip loan in order to get a home up to par. Also, the time involved with correcting a deficiency may have considerable financial implications. You need to factor some contingency into your budget so you’ll be prepared to deal with the unexpected.
Do your due diligence before buying a fixer-upper. A good understanding of your full scope of work and an accurate estimate of your profits will help assure your project produces a positive result.