REAL ESTATE INVESTING RULES TO LIVE BY
February 22, 2017 By Larry Arth
One reason I love buying fix and flip properties is it offers me multiple options for an exit strategy. I can keep it and cash flow it or, if the market is appropriate, I can flip for a quick profit to buy another
Many buy and hold investors like to buy some fix and flip properties as a strategy to acquire a chunk of money quickly to use as a nice down payment for a property that will be a great cash flowing buy and hold property. When doing so here are some rules to live by.
Know who is the end user (your buyer)
As you always hear,” you make your money going in.” When purchasing, you want to consider what your exit strategy is and if your exit strategy is to fix and flip it is imperative to know who your end buyer will be and invest in property that the largest number of people will want to buy.
In the U.S. the 3 bedroom, 2 bathrooms, 2 car garage home is the most highly sought after property. First time home buyers, empty nesters, second home buyers and pretty much everyone in between like these properties. The most highly sought after price point of course is the one which represents the area’s median home price. These properties are gold, when you buy the best property in the best markets you have sustainability.
You can obviously make great returns on a variety of fix and flip properties. The idea is to buy, improve and sell for a profit. Buying the most highly sought after property simply reduces your risk by broadening your buying audience and increasing your ability to make a quick sale in a retail friendly environment.
Invest with a value play:
When you already have a strong investment market and a property such as the most highly sought after 3/2/2, you can increase that to a higher level of return by not only updating a property but also adding a value play (essentially manufacturing additional value by incorporating a higher and better use of a property).
I always love to buy a 2 bedroom home with large sq.ft. that can easily convert into a 3 or even 4 bedroom home under the current roof and sq. footage. I am from the midwest where we had basements that often could be economically finished off to add inexpensive sq.ft.
Here in Florida you can often convert a Florida room to a bedroom
I once took a 2200 sq. ft. home that actually had only 2 bedrooms but had 2 1/2 baths and 2 full Florida rooms. This home basically suffered from what is often called obsolescence (the current use is obsolete). Needless to say the value play is converting one Florida room to a bedroom with a closet which adds lots of value to the property at a very quick and low cost.
Another great value play is buying in the path of progress. Invest in areas where the city is growing. This is often where values increase the most. C class neighborhoods often escalate into B class neighborhoods as the area improves.
Seasoned investors do not begin looking for investment property by driving around neighborhoods within their communities looking for property for sale. They get online and search for best cities (or markets) which will be investor advantage markets and then look for opportunities to convert to highest and best use and definitely knowing who the buyer will be and what their wants and needs will be.
Essentially they find a need and fulfill the need.