Flipping Into 2025
2025 Can be a Successful Year for Fix-and-Flip Investors
by Andy Bates
Interest rates remain high at the onset of 2025, and any changes to rates will likely occur over time and at a measured pace. This means investors may need to adjust strategy to make the most of the current yet evolving environment. Investors may have to develop teams if they are not already using them, find new markets to investigate, and more heavily scrutinize not only which investments to pursue, but the best path to profit.
Team Players
For the fix-and-flip investor in 2025, success can be reliant upon having a strong team of industry professionals, and an integral part of any investor’s real estate team is the broker. Having a trusted broker who can be leveraged for repeat business can make sourcing deals and securing funding measurably easier. When a successful broker specializes in residential investments it means they have dialed in on that asset class and constructed their business and workflows to help investors acquire residential investments efficiently and consistently.
Beyond brokers, general contractors are key to managing the execution of a project and can be leveraged to undertake multiple projects simultaneously. Contractors not only have a knowledge of their craft, but also of the asset class in which they specialize. Discussing scope of work with contractors in advance of major projects enables the contractor to provide practical insights into best practices, timelines, cost, and expected difficulties. Such insights are especially valuable in area markets that are new to the investor or distant from their headquarters as permit and approval processes may differ in a given state or municipality.
Where to Play
The first step to identifying viable markets is recognizing that a market’s potential will be, in part, determined by an investor’s access to starter capital for their next project. This consists of ascertaining the average property values market to market. An investor who cannot participate in markets commanding average values of half a million dollars, may be better suited where the average is only $300,000.
Alongside property values, another imperative for fix-and-flip investors is time: time for approvals, completion of work, and time to sell. More expensive markets can provide greater returns, but the downside is that investor hold-times, or time on market, may be longer and this can affect annualized returns.
Growth is a key indicator for investors when determining where to flip. Trends in population growth, tech growth, and job growth are all valuable metrics to consider. Where there has been consistent growth, there is likely to be greater stability which can make for sound investing.
Useful Flipping
After selecting markets to work in, the next target for investors is assessing which projects to pursue. Choosing a property is all about identifying the best use case for return on investment. When it comes to residential flipping, use-case is often associated with three levels of scale for the renovation.
There is light rehab, which costs the least and should require the least time to complete. These are cosmetic updates targeting things like trim and paint to quickly up a property’s value.
There is an intermediate approach that is more involved than light rehab. These updates targeting elements like flooring, roofing, and windows, all things that carry a higher cost than lighter cosmetics. These projects take marginally more time and money but can produce higher values.
The last degree of work focuses on attaining the highest value the property could possibly sell for in its market area. These renovations are often structural, such as area expansions or new, dividing walls, and focus on adding amenities such as a new bathroom. The cost for projects like these are markedly higher than the previous examples and may take more time.
Choosing the best-use case for an investment is all about creating margins. Investors should look to sell for the most profit, not just selling for the highest cost. Since flips for properties with low unit counts are best handled in a year or less, there is an emphasis on calculating annualized returns when considering investment strategy. With an understanding of the overall cost of an investment compared to potential profits on an annualized basis, investors can make informed decisions about which investments are most likely to not only succeed but meet or exceed necessary thresholds for their business.
It is worth mentioning that investors can work with their broker not only to source deals, but also to indicate the best-use case for the asset. Brokers can help by leveraging data largely in the form of recent comparables. Once determined, the preferred use case can then inform the renovation strategy by defining the overall goal.
Flipping Budgets
In order to see a comprehensive view of the scope of work involved in a flip, investors must have a keen understanding of renovation budgets. Inexperienced investors may have particular difficulty in this area due to a lack of exposure to the costs of materials and labor, especially in differing markets. Overcoming such deficiencies can come down to an effective use of data.
Investors can gain an understanding of scope of work by looking at market data on what investors have paid for comparable properties and how much they were then able to sell them for in a given span of time. This data can be obtained through research with websites and services that track investor activity.
Brokers and even title representatives can furnish lists of properties by area that were purchased within the last 12 months by an LLC and sold within the same timeframe. Combining purchase and sale data, often via tax records, with process photos and listed amenities creates a broader understanding of what to expect from a given investment.
When it comes to a more precise understanding of materials and labor, relying on experienced general contractors can make all the difference. Even retailers can be leveraged to determine estimated cost for scope of work. Many purveyors of construction goods and supplies will provide quotes for materials and installation. Some may be as simple as an aisle sign stating the rate per square foot of material installed.
Flipping Forward
Even with an understanding of area markets, assets, use-case, and scope of work, the risks posed by fix-and-flip investing can leave many investors hesitant.
Earlier this year, real estate professional James Dainard, whose career successes include both brokering and investment, appeared on the “Real Estate Rookie” podcast to talk about fix-and-flip investing amid uncertainty. One of his key takeaways from the conversation: “I never should stop buying.”
Dainard indicates that in tough times, the majority of investors tend to freeze activity when they are losing money. He posits that, typically, this occurs when everyone is losing money and the market is likely heading into correction. The result of these tidal freezes is often that deal quality improves and so investors who may be experiencing a loss actually have the opportunity to buy their way out of the situation with further investments. It can be as simple as staying in the game.
Let’s Flipping Go
It is not just the market that determines success; it is also about the flipper. With the right resources and strong players on their team, investors can work successfully even in less-than-ideal markets, and it is worth the caveat to investors that the inverse can be true as well.
So, with key market insights, the right players in place, and determination to continue in the space, 2025 can be a successful year for fix-and-flip investors.
