Fix and Flip
Fix-and-flip is the strategy of purchasing a property, remodeling it to add value, then selling it at a profit. Investors typically buy a property at a discount because of its condition. After the investors fix up the property, the next step is to sell it as quickly as possible and at as much of a profit as possible.
- For many real estate lenders, this refers to any property bought and sold within a 12-month period.
- Sometimes the property needs only some aesthetic updating but, more frequently, it requires major renovations.
- In some cases, it might not be legal to occupy the house until the investors can prove that they made certain repairs.
- If a fix-and-flip property takes too long to sell, it can cost investors in one of three ways:
- Interest carry: This is the monthly cost of money borrowed for the project. This assumes the investor has a loan on the property.
- Opportunity cost: This is the cost of not being able to take your money and invest it in another project.
- Cost of capital: This is the cost an investor should charge themselves for the money invested in the project.