Fix and Flips!
The ugly duckling that (could) make you rich
As a preface to this newsletter, I wanted to be clear on what my goals are and what these weekly posts will entail. I am using this newsletter as a way to document my journey of learning the process of real estate investing, and basically dump all the information I have learned into this funnel. I am in no way trying to act as a “guru” or mentor. I am most likely in the same boat as a lot of you reading this, and I think that brings a lot of value. Most investing blogs and videos are all about those that have done it already and are at the top. I want this to be more relatable to the average person who wants to get started, and can follow along with my wins and losses!
What is a Fix and Flip!?
This weeks newsletter is all about the tried and true Fix and Flip. In essence, this strategy of real estate investing is when you find a home that needs some (or a lot of) work in order to make it up to standard. You fix it up, and list it for more than what you put into it. It’s usually an older home that hasn’t been taken the best care of, has been damaged, or even is abandoned. There are really two levels of property condition that I have seen in the world of fix and flips: cosmetic and structural. If a property’s bones are solid, and you really only need to change the layout of the rooms, paint, furniture, and other “simple” touch ups, this is what I consider a cosmetic flip. On the other hand, if the property is completely run down, foundation is failing, the roof needs replacing etc., this is what I would consider a structural flip. Depending on your knowledge/budget/time, you will be able to decide which kind of flip you are willing to get involved in.
What type of place do I look for??
When searching for a fix and flip, you are typically going to want to look for homes that have been sitting on the market for a while, are priced lower than the market, and are in a good location. A lot of times, it’s going to be the ugliest house in a good neighborhood, or even a decent looking home with horrible layout or design. Although the run down, ugly houses are probably the last type of property you’d think you want to get involved in, these are the ones that have the most opportunity to make a great profit in. This is because you are adding value to the property per your renovations and updates. Value add may be one of the most powerful and quick ways to bring your real estate investing to the next level.
Value Add
A good way to understand value add is by showing a real life example. Say you just purchased a 2 bed 1 bath house that you are planning on flipping. You paid $200,000 for it in a market that is appreciating in value. The home needs a brand new kitchen, you’d like to add a bathroom to make it a 2bd 2ba, and you want to add an outdoor feature like a nice deck with furniture and maybe a hot tub! We’ll budget $30,000 for the new kitchen, $15,000 for the new bathroom, and $15,000 for the deck and hot tub. So all in all you have a renovation cost of $60,000, making your grand total for the home $260,000. This next step should be done before you even begin renovations, and that is checking out local comps in the area that are 2bd 2ba with a renovated kitchen, and a nice outdoor area for entertaining. Based off of this data, you’d also be able to tell how your renovation budget compares. After doing plenty of research, and talking to local realtors you’ve come to a conclusion that your home’s ARV or “after repair value” will be somewhere from $290,000-$300,000. This means depending on the quality of materials you use, work you do yourself, and other factors, this property has a potential of profiting you $30,000-$40,000.
In Review
This example above was supposed to be a quick and simple way of showing how value add can make your fix and flips extremely profitable. These numbers and examples are all made up by me, and will obviously vary depending on decisions you make. Some flips make far more, and others barely break even. It all depends on the amount of time and research you spend before-hand in order to make you the most money in the end.
Some of my favorite websites/channels/blogs
A few resources that I highly recommend checking out are the Bigger Pockets website/podcast and also a youtube channel called "Robuilt" that has helped me a ton over the past few years. These two are what I have found to be super helpful in “dumming down” a lot of concepts that other gurus seem to cruise by, while still having the success and large portfolio’s you’d want from a mentor.
I hope you all enjoyed this weeks newsletter and took something away from it that you didn’t know before. As always if you enjoyed, feel free to share this with someone you know might be interested. You can also subscribe below if you want an extra newsletter every week that shows a full “Deal of the Week” analysis where I pick a property to analyze from start to finish!