Rehab and Flip Profit Model
Big Cash Profits with Rehab & Flip
One of the Most Popular and most profitable Models of all …Rehab and Flip for HUGE Profits!
Use the Rehab and Flip Profit Model to purchase a property in fair or poor condition at a discounted value, then rehab it and flip it to a retail buyer at a significantly higher price. With the Rehab and Rent strategy anyone can do just 3 to 5 deals each year and make over six figures in profit!
What is a Rehab and Flip and How Does it Work?
A Rehab and Flip occurs when you buy a physically distressed property at a deep discount, fix it up, and then sell it to a retail buyer for more than you put into it. The process is simple in nature, and this profit model is one of the most popular of all the Profit Models due to the higher profit potential. That has led to the popularity of such TV shows as A&E’s Flip this house.
The only other Profit Model that the Rehab & Flip is the Rehab & Rent. The difference is that one is a short term strategy versus long term. You must make the decision that’s best for you.
The process of a Rehab and Flip is fairly simple in nature. Although if it is not managed properly the time involved can cost you all your profits. If your considering a rehab and flip you need to follow this basic process.
- You must first find a motivated seller with an ugly property. In this case that usually means that the property needs work. One way to find these ugly properties is to drive around until you see a vacant or abandoned home in a respectable neighborhood. Start with the neighbors next door, across the street and down the street. Explain that you want to buy and fix up the home and they will tell you everything. They want the home fixed up!
- Once you locate the owner, let him know you want to buy the property and see if he is interested. If he is, ask if you can have a professional contractor come and give estimates on repairs. Never discuss price until you know repair costs. It is also a good idea to check the title for back taxes, liens, code violations, etc. But don’t get lost in that right now as you will have a title search done that will uncover any of these problems long before you close.
- Once you have your numbers straight, do your analysis to establish your offer price. In general a good place to start is 70% of the ARV minus the cost of repairs. You will be surprised to find that if you present the value of what you are doing for the seller, you will get ridiculously low prices. If he has payments explain how those will be gone as soon as you close.
- Unless you have lots of cash you will need a hard money lender to help you get started. Generally the hard money lenders will lend up to 65% of ARV (After Repair Value) and you must come up with any additional repair money over that value. If there is enough equity in the deal then the lender will usually require that you leave the repair money in escrow and send them invoices from your contractors so they can release the money.
- Manage the Rehabilitation of the property.
- After the rehab is completed you immediately start advertising for buyers. Run ads in your local paper, put a sign in the yard, and call all your realtors. Don’t wait, it will cost you, and besides you might get lucky and find a buyer right from one of the neighbors.
- Market and Sell the property for more money than you put into it!
If you’re doing your first Rehab and Flip deal, then be careful. These types of transactions can be very difficult and mistakes can cost you thousands. Nevertheless, there are many benefits to this kind of transaction. The strongest benefit is the high profits involved. So don’t let the idea of the risks scare you, after all, the higher the risk, the higher the reward.