The Best Kind of Fix and Flip
When it comes to a fix and Flip, it can be hard to determine what kind of investment property to choose. Some investors choose a property with a large rehab budget because it yields a greater return than an investment property that is more cosmetic in nature. But, that is not necessarily the best kind of flip. Todd Pigott, ZINC owner and industry expert, has experienced every type of flip imaginable and has learned what type of flip is most advisable. He recommends investing in cosmetic flips that have a slightly less return over a single property that requires extensive rehab and yields a higher return.
While it’s tempting to go after a big return and challenge yourself, it is not always the best strategy. Todd says, “You are much better off making slightly less profit if that means you understand the costs involved, exit strategy, and are not facing costly obstacles along the way.” He continues by describing the potential risks of going after the return that comes with a complex flip, “There are often costly obstacles, undefined exit strategies, and it is not necessarily repeatable.” Cosmetic flips are simple and quick which makes it easy to invest in multiple at once, or in other words, they are repeatable. Todd states, “Think about McDonald’s. Their hamburgers are not complex and they may not make a huge profit on each individual burger, but they know their strategy, costs involved, and their process is easily repeatable. Overall, they have their strategy down to a science and know the outcome of producing a simple burger. They do not focus on making the most expensive burger in hopes that it could yield huge returns. McDonalds is so successful is because they keep their costs low and have a seamless strategy. This is comparable to fix and flips in the sense that investors that have their strategy down to a science and focus on multiple simple flips that are low in cost end up being more successful in the long run.”
ZINC advises that investors look at more than just a high return. Of course, everyone wants to make a huge profit, but there is much more to consider. With a large flip, investors should think about the opportunity costs of permits, engineers, and general contractors. We often see investors get into trouble taking on huge flips just because their focus is solely on the return. But, there are rarely major issues with small, cosmetic flips. These types of investment properties are great for both novice and seasoned investors. Two cosmetic flips could even give you a similar return that a single complex one could. Todd, who has done over $100 million in fix and flips, strongly recommends taking a smaller return to have a seamless and efficient experience.
Remember, ZINC is here to help! We lend regardless of experience and pay up to 90% of the purchase price and 100% of the rehab. So if you have an investment property in mind, reach out to us today or click here to apply now!