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Short-term real estate investors purchase run-down buildings and homes to either fix and flip or demolish and rebuild. The goal of both is a quick profit.
Unfortunately, with fix and flip, unanticipated repairs, costs, and delays often cut into the profits. Also, many fix and flip buildings and homes are old and are not energy-efficient and durable, which potentially makes them a poor investment for the future buyers.
Short-term real estate investors can avoid the financial risks of fix and flip by demolishing and rebuilding with the Bautex Wall System. New construction limits, if not eliminates, the unplanned costs associated with fix and flips. Also, Bautex is quick to install, energy-efficient, low maintenance, and termite- and moisture-resistant. Short-term real estate investors and the future buyers can both win by demolishing run-down structures and rebuilding with the Bautex Wall System.
What is a Fix and Flip Real Estate Investment?
A fix and flip is a short-term real estate investment. According to the ATTOM Data Solutions U.S. Home Flipping Report, in 2017, 207,088 United States (U.S.) single-family homes and condos were flipped by a total of 138,410 real estate investors.
Typically, fix and flip involves a distressed property sold below-market price. The goal of fix and flip is to renovate the property and then resell for a profit in a very short time (less than 12 months). In 2017, flipping a house took an average of 182 days. The challenge to real estate investors is to make sure the selling price will cover the total costs of renovation as well as a profit.
Fix and Flip Homes: Real Estate Investors Beware
Real estate investors should carefully consider the cost of renovation and the real estate market to determine if a fix and flip are worth their time and effort. First, it can take a real estate investor a significant amount of time to find a distressed property in a good location.
Then, the investor must budget and estimate repair costs to determine if a desirable profit is possible in that real estate market. To fix and flip successfully, the real estate investor must be knowledgeable in the budgeting of renovation construction as well as the local real estate market.
Fix and flip properties are not for the cautious investor. The gamble with fix and flip is the likelihood of unexpected repairs and costs during the renovation, which can quickly put an investor over budget. Also, if the property does not sell quickly, the investor will accrue additional property expense that cut into the profits.
Ultimately the expected net profit of flipping a house can quickly disappear due to unforeseen problems and delays. Many real estate investors consider fix and flip too risky an investment strategy.
The Bottom Line and Low Profits of Many Fix and Flip Investments
According to the ATTOM Data Solutions United States (U.S.) Home Flipping Report, in 2017, the average return on investment (percent of purchase price) for a fix and flip was 49.8 percent. Unfortunately, recent data from RealtyTrac also found that 21 percent of fix and flips had gross profits of less than 10 percent and 8 percent sold for less than the purchase price.
Fix and Flip Homes: Buyers Beware
Fix and flip homes can look great on the outside; however, buyers should be aware of some hidden issues.
Rebuild with the Bautex Wall System for a Superior Real Estate Investment
For short-term real estate investors interested in avoiding the risks and problems associated with fix and flips, an excellent option is to demolish and rebuild with the Bautex Wall System.
New construction with Bautex eliminates the risk of unforeseen issues and costs associated with major renovations. Also, Bautex construction is quick because it combines structure, envelope, and insulation in a single, easy-to-install system.
Importantly, Bautex Blocks have features that many fix and flips lack: Bautex Blocks are energy-efficient, healthy, low maintenance, and termite- and moisture-resistant. For a quick build and a predictable profit in a very short time, real estate investors should consider building new with the Bautex Wall System.
ATTOM Data Solutions is the curator of ATTOM, a multi-sourced national property data warehouse that contains tax, deed, mortgage, foreclosure, environmental risk, natural hazard, health hazard, neighborhood characteristic and property characteristic data for over 155 million U.S. properties.
2Net profit of flipping a house is the return on investment (ROI) minus the sum of the acquisition cost, rehab costs, carrying costs, and marketing and sales costs