The Fix & Flip Boom
Popularity and Opportunity
By Mitchell Zagrodnik
In the real estate investment space, there are a variety of avenues one can take to turn a profit on a deal. At the end of the day, what makes an investment worth your time, as well as your money, is the overall return on investment. The ultimate goal is to come out of the deal with more money than you put in.
Today, one of the more attractive endeavors investors are taking in order to turn a profit is to purchase an undervalued or run-down property, fix and repair it, then sell the newly renovated property for a higher price. This method is known throughout the industry as the fix-and-flip method. Popularized by HGTV reality shows like “Property Brothers” and “Flip or Flop,” fix-and-flips have become the captivating trend in the real estate world, and a great launchpad for aspiring entrepreneurs looking to break into real estate investing. While fix-and-flip is not a new real estate investing strategy, the current marketplace offers increased opportunities for investors.
If you have not yet considered flipping, it is certainly a good time to look at it from a fresh perspective.
The Entrepreneurial Angle
The entrepreneurial angle to fix-and-flips is one of the more attractive aspects of the idea. People view the flip business as an exciting opportunity to start their own business and be their own boss. Working for yourself and on your schedule is enticing to individuals in today’s working climate, and anyone with a strong work ethic and networking ability can ultimately pursue and succeed in starting a fix-and-flip business. Even in a space that is growing in popularity and becoming more and more competitive, there are always opportunities for investors to make a splash.
Fix-and-flips are so popular now because when done well, they offer high profit margins and can be done in a short amount of time. Speed is the key, both in how you, the investor, get paid but also because the faster the property is sold, the less you pay in interest, and because of that the profit is higher and you can get started on the next deal.
The market is there for investors to take advantage of because there will always be buyers, and often, these buyers want to move into a home that does not require them to do any renovation themselves.
Know What You Are Getting Into
Fixing up a property is not an easy task. There are many factors to consider. The goal is to make renovations that are going to increase that property’s value, whether that is spending money on a new plumbing system or adding a backyard patio using pavers.
Having a plan and crunching the numbers is an integral part of turning a profit on a fix-and-flip. When watching the process of these flips on TV, it is easy to sit there as a viewer and say “Hey, that doesn’t look so hard, I can do that,” without fully realizing everything that goes into it. At the end of the day these shows are for your entertainment, so they tend not to show the challenges of the market. Finding the right house, paying for it, and finding the right customer to sell to are a few of the issues these investors can face. With the massive increase in flips going on throughout the country, the opportunity is there for people looking to break into the business and begin their fix- and-flip journey.
It is important not to bring a sense of naivety to these projects, so even though they look like quick and fun projects that can lead to massive profits on TV, there is much more that goes into the process.
Growing Popularity = More Competition
As exciting of a venture fixing and flipping properties can be, the growing popularity and competitive nature of the business can also have its downswings too. You get into something just before it becomes popular, and then after a certain amount of time, everybody is doing it. There are always opportunities for investors that are willing to look, but as the old saying goes, “Timing is everything.”
An article written by Diana Olick from CNBC in late December of 2021 directly mentions that the house-flipping market is getting more competitive, while profits are also going down on these deals. Olick states that in late 2021, return on investment on fix-and-flips fell to 32%. Surely, a sharp drop from 2020, where the average return was nearly 44%.
Getting into this business pre-pandemic allotted investors various property options, as well as low interest rates, so they can buy these properties, fix them up quick, and then sell them for a nice profit. Now what exactly is factoring into there being less profit? The answer can be attributed to rising interest rates, increased material costs, and frequent supply chain delays.
Because of these factors in the market, the investors are having to hold these properties for longer. However, even though the popularity has grown, and the space has become more competitive, there is still profit being made on these deals. It is no secret that 2022 rates are high, and it is fair to say the buyer’s market will potentially shrink again. For investors, the opportunities are out there, and they can make their mark in the industry in times like this while others are backing off.
Despite the challenges in recent months, a 30%+ return on investment is still strong.
Ample Opportunities
Fix-and-flip investing continues to be incredibly attractive in today’s market. When considering the changes in the market, this can still be considered an exciting time to get into fix-and-flip investing. Even with rates rising, these fix-and-flip deals may take anywhere between three and six months, meaning you might only be paying interest on the property within that period anyway.
Markets like these come around every so often, and there are buyers who are understandably cautious to dip their toes in. However, there are also those who see this as an opportunity to strike. While some are backing away, there are investors who are seeing their competition drop and are ready to pounce.
In the current real estate market, the opportunity is there for the taking.
