Buy-Fix-Sell a.k.a. Retailing, Flipping,Rehabbing
Successful Real Estate Investor: Anatomy of Retailing
What is Retailing?
This is a quick guide to the exit strategy Retailing, aka Flipping. Retailing is the process of buying homes that need repair, completing the repair, then selling the home on the “retail” market-at or slightly below market value. The end user is the owner-occupant of the property. The owner is someone typically not an investor, but someone looking for a finished place to live...a place they "fell in love with."
Generally, retailers make a larger profit from their efforts. They are the ones that will take a property all the way from aquisition all the way to finish and sale. The larger profit comes from the longer holding of a property, thus the higher risk. The average retailer can accomplish 8 jobs per year.
Retailers assume significantly more risk than a wholesaler because they actually take ownership of the property. In addition to the acquisition cost, they also take on the cost of the renovation, debt service, taxes, insurance, and any other costs associated with ownership.
Greater resources are at stake. Cash flow must be managed carefully. Many retailers can get "upside down" on the property, ending up losing money and sometimes the house itself.
At any point in the analysis of the property, one or more inaccurate estimates can turn what was a profitable deal into a money loser.
Should I retail?
Retailing can be a fun and rewarding experience. Before you become a Retailer, you should have experience wholesaling because that means you can find deals that have enough spread in them. Once you have enough cash reserves, start with a minor rehab-paint, carpet (nothing inside the walls), then work your way up the scale. Take courses on rehabbing, work or volunteer with someone that has experience. Spend time learning about pricing at your local hardware store.
We cannot emphasize the importance of making sure you have sufficient experience making sure you can analyze a deal, making sure you factor all associated costs, as an error in repair cost or time it takes to sell can result in losses.
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