Thanks to inflation, the prices for everything are on the rise – and that includes everything from investment homes to the materials you need to flip them. Are fix-and-flip homes still worth your investment during times of significant inflation? The answer is yes, but there are a few things to keep in mind.
More Competition and Less Profit
It’s true that there is more competition for fix-and-flip homes right now than there ever has been before. As low inventory continues to drive home values up, more people than ever before are looking for a big break in real estate investing. The increased demand for limited inventory only drives prices higher, and when compounded by the increasing costs of building materials, it might seem like fix-and-flip investments aren’t even worth your time. Fortunately, this couldn’t be further from the truth.
Turning a Profit in Today’s Market
You will be competing with other investors and you will turn less profit on each home you flip, but the truth is that the returns are still worth every bit of the investment if you buy smart, fix smart, and flip smart. Here are some tips for generating the most profit for the least initial investment.
- Understand the market where you are investing. The better you know the local market, the better decisions you will be able to make about buying, fixing, and selling homes. In fact, many investors are switching markets altogether because they’ve been effectively “priced out” of their preferred or local markets. Don’t be afraid to switch to another city or suburb if your opportunities are limited where you are.
- Don’t blow your budget. In times like this, you’ll find yourself being tempted to spend more than you normally would, but this is a recipe for disaster. Set yourself a budget – a hard line on how much money you will spend – and then stick to that. You don’t have to go crazy planning your margins, but if you take some time to come up with a budget that you can stick to, you’ll know that as long as you spend under that amount, you are going to turn a profit.
- Choose the right lenders and contractors. Finally, if your investments are going to be profitable, it’s important that you find lenders and contractors who are affordable, reliable, and up-to-speed with today’s housing market. Your lender of choice should be flexible and knowledgeable, and they should serve more as a partner than a source of financing. Along those same lines, you should work with contractors who bid fairly and then do everything in their power to stick to their bids – and your budget.
Fix-and-flip properties are still some of the most lucrative investments available despite the lower profit margin, lower inventory, and higher competition. It’s all about knowing the market well, sticking to a budget, and working with partners who value your partnership enough to deal with you fairly and affordably.