It’s a big deal, or is it? 3 Ways to Determine if a Fix and Flip is Worth your Investment
The most important factor of investing in a fix and flip is making sure that the property has great potential and that it will give you a good return on investment. But how do you know if a particular fix and flip is worth your hard-earned cash? It can be easy to get into hot water when taking on an investment property. Rehab costs can add up quickly which greatly affects your return. Instead of rushing into buying a fix and flip property, it is vital that investors do their homework and have a realistic strategy in place. Don’t worry, if you don’t know where to start when evaluating whether or not a property is worth your money, ZINC is here to help!
- Pay attention to comps- Whether you are planning to sell your fix and flip, or rent it out, it is a must to look at comps. Homes in the area of your investment give you an indication of what your property will sell/rent out for. Looking at the neighborhood comps will help you determine how much you should be spending to flip the property in order to get a solid profit. But, it is important that you are looking at renovated homes in the area to get an accurate representation of your after repair value. If you are getting a loan for your flip, it is good to remember that your loan amount should not exceed 75% of the after repair value. Another good rule of thumb is to make sure the property’s rehab budget does not exceed 30% of the purchase price. For example, an investor may purchase a property for $100,000 and think they can make a great profit because renovated homes in the area are selling for $180,000. But if the property needs $70,000 in rehab, the investor would not get a high enough return to make their investment worth it.
- Curb and Gutter Theory- This term is coined by ZINC Owner, Todd Piggott. His theory is that investors should make sure their potential investment property has curbs and gutters. A property in a rural area will not likely have curbs and gutters. ZINC recommends that investors stay away from those types of properties.
- Location, Location, Location Make sure that your flip is located in an area where the population exceeds 10,000 and that there are schools and shopping centers in the area. This will help ensure that your property does not sit on the market when it comes time to sell. It is also important that you live in the area you are investing in if you are a novice. No one will care about your investment other than you. So, be sure you can easily monitor the progress of your flip.
It’s a big deal… or is it? There are many factors to consider when investing your hard-earned money. But remember, ZINC is always here to answer any questions you may have! If you are still unsure whether your investment property is a good deal, check out our deal analyzer. The next step is to call us to get your deal funded!