CMD Fix and Flip / Construction Loans

The goal of the fix-and-flip strategy is to generate near-term cash by fixing issues with property, thereby maximizing the price. The typical time to flip is two to six months.

The advantages of the fix-and-flip strategy include.

• Quick profit.You get your money back in months rather than years.
• No management/tenant hassles.Fix and flip is more like a date than a marriage. No long-term commitment or involvement.
• Staying liquid.Getting your cash, and a nice profit, out of the property in a few months keeps you nimble for the next opportunity.

These advantages are offset by the ongoing need to find properties and the pressure to maximize your profit on each deal. This is a treadmill that requires constantly doing new deals to make a long-term living. Which may not be a downside if you live for the thrill of the hunt.

What are you fixing?

The term fix and flip immediately brings to mind repairs. But fix and flip goes beyond just repairs – it means fixing any issue that prevents potential homeowners from buying the property. A distressed property in mint condition may still be inaccessible to the majority of buyers due to other issues.

Physical condition.

Most foreclosures need some degree of repair and renovation and many buyers can’t or don’t want to deal with the hassle of doing it themselves or managing contractors to do the work for them. If you’re doing repairs or upgrades, be sure you focus on the areas that give you the best return on investment, such as kitchen and bathroom renovations or adding additional rooms.

Title.

A property bought at auction doesn’t come with title insurance. Most homebuyers aren’t willing to take that risk. When you buy the property you are fixing a title issue and making it accessible to a wider range of buyers.

Financing.

Auction investing is a cash-only game and most buyers aren’t in the position to pay cash for a home. By acquiring the property, you are making it possible for a buyer with financing to buy it.

Occupant.

Very few buyers are interested in a home that comes with the built-in stress of evicting the current occupants. It kind of takes the edge off the excitement of getting your dream home when your first step after closing will be to contact the sheriff to kick someone out.

Taxes.

When you sell a property within a year of purchase, the profit is classified as a short-term capital gain, which means it is taxed at a higher rate than if you keep it for a year. See Buy and Hold Advantages.

Fix For Curb Appeal

Any repairs done should be targeted to maximize appeal, both inside and outside, for the least cost. That doesn’t mean going cheap, but it does mean being discerning.

Outside. Keep the lawn cut and the landscaping trimmed and weeded and watered. Repair or replace loose or damaged roof shingles. Check for peeling paint and loose gutters. Keep the garage door closed and store vehicles elsewhere. Give the front door a fresh coat of paint.

Inside. Clean all rooms address all cracks or holes in the walls and paint them, replace worn or damaged flooring, fixtures and appliances. Be careful thou about putting new appliances into vacant homes in bad areas. If you are in a highly competitive mid to upscale market, consider painting accent walls, adding crown molding, or staging the home with quality furnishings. Use popular, safe color and material choices.

Most importantly be competitive with nearby listings and compatible with the neighborhood. There is no reason to put in a granite kitchen if the other listings all have Formica, but you may have to if you are the only one that doesn’t. If every other house on the block has weeds in the yard don’t bother with expensive landscaping. At the end of the day the goal is to present prospective buyers with the best balance of price and quality (value) on the market.