With the increase of foreclosures up for sale I am interested in possibly buying one and fixing it up to sell or rent. What do I look for to make sure I can profit in this venture?
— J. L. Attica
J.L., I would not recommend a "Fix & Flip" right now unless you can do much of the fixing work yourself and can purchase the property with your own cash. There is a significant risk to those who plan on hiring contractors to do the improvements and those that have to mortgage the property to buy it. The reason the risk is so much higher is that your costs rise dramatically to fix it up by hiring contractors versus doing much of the work yourself. Also, paying interest on a home while you fix it up and try to sell it can ruin your bottom line if it does not sell quickly. Getting a great deal on the purchase price may not help as those savings can disappear if you are paying interest for 6 to 9 months while you try to sell. There are some select individuals who can successfully pull off a "Fix & Flip" but most real estate investors should think twice before trying that in this market. However, now is a great time to purchase a foreclosure and do what is called a "Fix & Rent". Buy a foreclosure now for 10-20% below market, spend a little money and some elbow grease on fixing and cleaning it up. Then rent it out for more than your payment is and net yourself a small income each month. The key to making this venture profitable is buying right then renting right. To make sure you buy right work with a knowledgeable Realtor who knows the investment side of selling real estate. Your Realtor should make sure you get a good, solid home that would be desirable to most renters that needs only cosmetic repairs at a price that is 10% to 20% or more below current market prices. This 10% to 20% or more gives you a little protection and comfort zone so that should the market continue to drop you could still sell and at least break even. Keep in mind that foreclosures that sell for 10% or more below current market prices sell quickly and you will need to be working with a Realtor who can alert you immediately the moment a great deal hits the MLS. Once you have bought right and fixed it up the other important thing is to rent right. Renting to bad renters no matter how high the rent they will pay is the quickest way to lose money in the rental business. Find good renters and you will always profit even if the rental amount is a little below what you could charge. Let me know if I can be of further assistance to you.
Alex Lengemann is a licensed Real Estate Broker who operates RealtyVolution.com, a local real estate company. You can Ask Alex your real estate or mortgage questions by phone 810-664-1819 or by email Alex@RealtyVolution.com.