One of the best businesses is to take on a property in a good neighborhood and give it a makeover that helps raise its value. It’s called fix and flip, as you renovate the property to bring it up to speed and then sell it for a profit. Sounds like a solid business? Here are the rules to make sure you’re winning:
The Elusive 70% rule
The 70% rule is followed like gospel by many realtors and professionals in the industry and provides a solid baseline for fix and flip property expenses. Essentially, it states how much you should be spending on one single property. All of the costs that you pay for the property, from acquisition expenses to maintenance costs, should never go beyond 70% of its after-repair value.
If a property is worth $500,000 after renovation is complete, you shouldn’t be spending any more than $350,000 on any costs for buying, repairing, and following through with its sales in total.
Pay Extra Attention to The Costs
To follow the 70% rule, you need a fair amount of foresight and knowledge of all of the costs involved. It’s crucial to do all the research you can beforehand, with a proper survey of the property so that you have your expenses assessed. It’s fairly common for novice realtors to realize that there’s a large expense that they’ve unaccounted for.
The 70% rule ensures that you have a safe margin for profitability and even in the worst case, you don’t lose out on much and break even.
The Right Pricing
One of the major causes of why a property isn’t selling is because it’s priced poorly. Even if it’s slightly off, people will not consider it. The real estate market is one of the most competitive and the smallest margins can lead people to make entirely different decisions. And remember, any property sitting on the market longer than it should is money you’re losing out on.
Work with some real estate agents to set an appraisal for the property and do a complete market analysis to set a solid price that’s good for you and the buyer.
You don’t have to fix up any rundown property or location simply because someone recommends it. Your goal should be to focus on the 70% rule so that you’re getting the most of the deal. Don’t be afraid to turn away a potential idea because the numbers don’t work out. It’s essential to do your research and ensure that it’s working for you.
Many people tend to develop an emotional attachment to some properties, avoid sentiments in this department.
If you’re looking for flip loan financing options and hard money loans from private money lenders, consider working with us at Insula Capital Group. We offer real estate financing, investment home loans, hard money construction loans, commercial bridge loans, and more.
We offer attractive hard money loan requirements to facilitate working with us and take things to the next level. Reach out to us to get started.