I figure the only real way to start out a blog on our website is to do it about doing fix and flips and start from the beginning. So, what is a fix and flip? It’s when you buy a beat up, run down, water, mold or asbestos filled dump, add value by remodeling it and then sell it on the open market. Now that being said there are a million different strategies, project sizes, scopes, profit margins, etc to choose from. All of which can be both profitable as well as disastrous. My job of this series will be to help you avoid the land mines and find the pots of gold.
The first type of flip I will categorize as a minor fix. These are the most popular fix and flip because they are the easiest to find, the easiest to complete, and the most competition to buy. A minor fix is a home that only needs 30k in rehabbing fixes or less, but almost all cosmetic. These are usually done by individuals that do there own work, because they can be done with or without permits and include things like replacing cabinets, redoing bathrooms with new tile, new fixtures, and paint and carpet. Because of the ease of doing these projects and the wide range of buyers that can handle these projects, they also tend to have the smallest profit margins. This is the simple supply and deemed principal at work, as the competing flippers bid the purchase up to the point where much of the profit is taken out of the deal.
The full remodel project is second degree and usually includes a full scale reconstruction of the home including electrical, plumbing, HVAC systems. These projects almost always include some floor plan changes including opening kitchens, moving around bedroom walls, finishing basements, etc. These projects almost always require permits(although many take the foolish risk of not pulling per emits to save time and money). Because of this, usually the competition of buyers trying to do these projects usually falls to those who are professional flippers, or contractors that flip the occasional house.
Finally, the full scale gut. These is usually reserved for the truly passionate flippers who put their heart and soul into each project that they do and the larger companies that can afford the expense of the 80k remodeling price tag. The scopes of these projects usually include removal of everything but the exterior walls. These must be permitted unless you truly have the desire to receive a tonge lashing from your local inspectors when your caught. Trust me, I’ve been there. These projects usually fall from a home that has serious problems, horrible floor plans and/or structural issues. I never recommend a first time flipper starting here as there are to many variable that a novice will fall into. Think Tom Hanks in the movie Money Pit. If you haven’t done enough homes to know what lyes behind most walls, don’t even attempt. Because of that though, these often have the beat margins, but also take the longest. With big profits come big risks.
So as you can see the progression in work, scope, time and size of project, should translate into increase profits. Next post – The Only 3 Numbers that Count