A “Fix and flip” is when an investor buys a property with the intention of selling is quick for a profit. Often, investors will purchase a single-family real estate investment with the intent to rehab the home to be more livable or more desirable to potential buyers. The intent is to sell it for a profit after the initial investment, time it took to sell, cost to sell, and rehab cost.
Doing a fix and flip can be very rewarding, as you can make a lot of money in a short period of time. This can also accumulate a lot of time and effort, so if you’re not currently full time into real estate, you will often need someone to oversee the project.
Here are some pros property flipping
- Gain experience of flipping in your local market
- Construction through repairing, renovating or remodeling a property, you will gain insight into aspects of construction. You will start to understand the cost of various materials and costs of repairs.
- You will understand unanticipated costs
- Increase your network, and meeting industry professionals and other investors
- The potential to make some quick cash
Here are some cons of flipping a property
- The main problem with flipping a property is when some unexpected costs or timelines don’t get met, and properties begin to eat at the potential profits. The point is to make money here.
- Once you have completed renovations on a property, the city may increase your property taxes. This will affect you if you have an issue finding a buyer.
- Capital gains taxes could apply depending if you have owned the property for less than or more than one year. Your capital gains rate will vary; however, you will also have the ability to do a 1031-exchange and postpone the taxes owned to a future point in time.
- The costs of having a mortgage on a property can begin to gather quickly. The cost of principal, interest, property taxes, and insurance and any maintenance costs, cleaning and so forth. The cost of the rehab, can begin to seem like a lot of money invested.
- Having difficulty selling can be a way to lose money, being unable to find a buyer. This can typically mean you are asking for too much. This is a common issue, where someone over evaluates a property, and it sits on the market.
- Issues with contractors, or suppliers and timelines.