Rehabbing: Fix and Flip
Of all the major strategies in property investment, renovating, rehab and fix and flip is also one of the riskiest ones. But it’s the one that all new investors want to do because they see this every time they watch TV reality shows.
These shows let you believe it's easy to make big money buying and selling and renovating properties. But it is like I said, one of the most risky strategies you can use.
Here’s how it works, you find a property, get the property under contract and then you buy the property.
You can use cash if you have cash. You can use hard money. This is money given by a lender who will loan you money based on the deal. Sometimes you can even use conventional financing.
Although it’s unusual because usually you don’t have time to get a conventional loan than if it’s a fixer-upper. Once you buy the property, you renovate it as needed.
Resell for Profit
After renovating it, you resell it for a profit and your typical profit on an average house would be $15,000 to $20,000 or 15% of the after repaired value.
Now, the risk.
Well, renovation, managing the renovation, managing your costs and managing the market.
The market can change and the house may not be worth as much as you estimated when you started the project. Those two factors alone can cause your profit to swing plus or minus 30%.
The question I have for all the new investors is, can anybody tell me what 15%, minus 30% is? That’s minus 15%.
So, yes. That’s why this is a very risky strategy.
Very, very often, new investors overpay for properties and don’t manage the renovations, and missed the market, and end up losing money, sometimes a lot of money when they do these projects and that’s why, of all the strategy we use, this is by far the riskiest one, but it is a very profitable strategy if done right.
It’s a high-risk kind of reward strategy. I do many renovation projects. I probably do, oh gosh, maybe two or three renovations a month even.
In fact, every year, I would like to tell, I do at least one cat house a year.
Cat house is a house where the owners have maybe hundreds of cats and we’d go into one of these houses and if you can stand the smell and get rid of all the cats, you can usually get really good deals on these houses and fix them up and sell them and make a profit.
That’s just one of dozens and dozens of examples of the kinds of houses that we buy for renovation projects.