Will The Fix And Flip Strategy Be Profitable In 2021?

COVID-19 has not left any sector of the real estate industry unscathed. From investing in rental properties to the fixing and flipping real estate strategy, COVID-19 has shaken up trends and made it difficult to know what to expect. This has left many wondering “Will a fix and flip be profitable in 2021?”

I sat "Yes", housing market predictions say that a fix and flip will be profitable in 2021. Housing experts are forecasting an increase in distressed housing inventory this year, after the federal forbearance on mortgages comes to end. While this is not likely to bring about a crash and a huge drop in prices, it still means a little more supply for flippers.

How to Find a Fixer Upper for Sale in 2021

While it’s true that the forecast for fix and flip returns is generally positive for 2021, you still have to know how to find a fixer upper that will make you some money. So, how do you go about finding a fix and flip that will generate a good return on investment?

• Drive for dollars

• Search the MLS

• Look for "Live" or "Online" Auctions

• Use Real Estate Investor Websites

• Use Bank and Lender Websites

• Check Tax Records (county websites)

• Cruise online platforms like Opendoor (https://www.opendoor.com/)

• Hire a Real Estate Agent, I mean, me.

Find the Right Real Estate Deals

Finding the right home at the right price is crucial for success in house flipping. You can find

off market properties via real estate auctions, direct mail, public records, expired listings,

and networking with attorneys and agents. Another great source for foreclosures, short sales, bank-owned homes, and auctioned homes is the Mashvisor Property Marketplace. You can narrow down your search using filters like the number of bathrooms/bedrooms, location, miles, cash on cash return, cap rate, and property type.

So, what kind of fix and flip should you look for today? Ideally, it should be one that satisfies the 70% rule. This rule states that you shouldn’t pay more than 70% of a home’s after repair value (ARV) minus rehab costs. For instance, if the home’s ARV is estimated to be $300,000 and you need $40,000 for rehabbing, your buying price should not exceed $170,000 ($300,000 x 70% – $40,000 = $170,000).

Besides determining the after repair value and rehab costs, you should also consider the closing and holding costs of the investment property. Closing costs are expenses incurred when completing a real estate transaction. These costs could include appraisal fees, loan origination fees, credit report fees, deed recording fees, and title insurance fees. Usually, closing costs are between 2% to 5% of the buying price.

Holding or carrying costs are the recurring expenses that house flippers are expected to pay for the period they own an investment property. The amount could vary greatly based on factors such as the age of the home, its location, and the loan type. Some of the carrying costs that come with owning real estate include the mortgage payment, utilities, insurance, property taxes, and homeowners’ association fees.

All these costs should be factored into the total acquisition cost before seeking funding for a

fix and flip.

Get Financing

As a flipper, you will need to raise money to buy and rehab the home. Besides traditional banks and financial institutions, there are other sources of funding you could consider for fix and flip loans. Here are some of the financing options available for fix and flip loans:

• Conventional mortgage

• FHA mortgage

• 203k loan

• Home equity line of credit (HELOC)

• Hard money loan

• Private money loan

• Owner/seller financing

• Real estate crowdfunding

• Partnerships

When creating a budget for a fix and flip, be sure to include a reserve fund. This is a

contingency for unexpected things that could come up during the fix and flip project. For

example, you could add $10,000 to cater for any unexpected repairs.

Conclusion

Is fix and flip profitable? Yes, studies show that flipping houses is lucrative and likely to

remain profitable in 2021. However, take time to learn all you can about house flipping tricks

and trends before venturing out. To enhance your chances of success in the US housing market 2021, consider assembling an experienced and reliable fix and flip team. This could include a real estate agent, like me, Bill Byrd, a title attorney, lending partners, and licensed

tradespeople (roofers, painters, electricians, plumbers, appliance installers, and heating and

air specialists).