Fix and flip is a real estate investment strategy that involves buying a property, repairing or improving it, and promptly reselling it for a profit. This is sometimes referred to as renovating, rehabbing a property or simply as a “flip”. It is a very common real estate technique and it is proven to be very profitable when executed well.
Our investor purchases a property for $100,000 that has dirty carpet, stained walls, broken kitchen cabinets, a damaged roof and perhaps a few other issues. The investor budgets $30,000 for repairs and property improvements such as new carpet, new paint or wallpaper, new cabinets, and roof repairs. His repairs and improvements actually increase the value of his property beyond the $130,000 he has spent on it. Four weeks after purchasing the property he has completed the repairs/improvements and he sells the property for $150,000, which results in him pocketing a $20,000 profit. Let’s look at the numbers a little closer:
Purchase price of property = $100,000
Price of repairs and improvements = $30,000
After repair sale price = $150,000
Total Profit = $20,000
Time taken to rehab and sell the property = 4 weeks
Many investors have successfully turned this investment strategy into a full time job. They may fix and flip 5, 10, or 100 properties every year. These investors almost always fix and flip properties in their local area that they are knowledgeable and familiar with. They will typically be dealing with local contractors, acquiring building materials from local stores, and dealing with any problems in a very hands-on manner. It can be a very profitable investment strategy, however it usually requires a significant amount of time, energy, education and experience to be successful.
A word of caution from American Properties:
American Properties strongly recommends NOT attempting to engage in a fix and flip technique with US properties unless you are already experienced in this strategy, willing to travel to the US, and willing to dedicate a significant amount of your time and effort. Completing a renovation in another city or state is challenging enough, but doing it from the other side of the world is an even larger challenge again. As you can imagine, the difficulties in executing a project like this purely through phone calls and emails can be exhausting or prohibitive. Scenarios will inevitably come up which require your physical presence to resolve. Attempting to implement this strategy in the USA from Australia adds an additional set of challenges. For example; different building codes, different legal framework, different work culture, and many other significant differences. Once again – we do not recommend attempting a fix and flip on a US property from Australia.
We recommend a buy and hold investment strategy in which you acquire turnkey property that has already been fully renovated to a high standard, has a paying tenant in place, has a local property management in place, and is cash flow positive. This has the benefit of reducing or eliminating a number of risks involved in a fix and flip. Here are a few more examples of the benefits of a buy and hold strategy:
-No risk of renovations taking longer than planned (every week without a tenant costs you money)
-No risk of unexpected renovation costs (eg. discovering a cracked foundation, or termites, etc)
-No risk of going over your renovation budget
-No risk of not being able to find a tenant or buyer after renovations complete
-No risk of contractor or legal disputes related to the renovations