Fix-and-Flip Deals: A Beginner’s Guide to Profitable Property Flipping

Shows on networks like HGTV and social media would have you thinking property flipping is the easiest form of real estate investing. While house flipping might seem like a straightforward strategy, fix-and-flip deals are more complicated. For real estate investors, property flipping is a numbers game, focusing on one property at a time and using the 70% rule to determine profitability.

Fix-and-flip deals are where investors purchase a property to make improvements and sell it for a profit. This real estate investing strategy focuses on maximizing profitability by quickly making improvements to ‘flip’ the property by selling it for a higher price.

Sounds straightforward, right? Except not every fix-and-flip deal will be profitable. If you pay too much for a property, you might struggle to turn a profit or lose more money than you’ll make on the flip. Every fix-and-flip deal comes with risk, so it’s important to take an objective approach to looking at every property.

This article is your beginner’s guide to fix-and-flip deals and the strategies to identify profitable property flipping opportunities. At Privy, our automated deal-finding tools and real-time investor data make it easy to pinpoint the most profitable fix-and-flip deals in your target area.

What is a Fix-and-Flip Deal?

A fix-and-flip deal is when an investor purchases a property, holding it for a short time to make improvements, before selling it for a profit. An investor will identify a property with flipping potential and secure funding to purchase it before making improvements and putting it back on the market at a higher price. 

Most property flips have a short turnaround of a few months. Depending on the property, these improvements could be cosmetic or more structurally focused. Every property will require a different level of investment to be made market-ready and the cost of these improvements must be considered before investing in a fix-and-flip. 

The goal of flipping is simple: purchase properties below market value, enhance them through repairs or updates, and sell them for a profit. This profit can then be reinvested into future properties, allowing you to grow your real estate portfolio. Fix-and-flip deals aren’t suitable for every investor due to their up-front cost and the investment necessary to make improvements. 

Some fix-and-flip deals, such as ‘cosmetic fixers’, may be better suited for investors with the skills to carry out DIY improvements. Large-scale fix-and-flip projects, such as distressed properties, may require you to work with a contractor, who should be consulted prior to purchasing the property to determine a construction program and budget. 

Flipping has become one of the most popular real estate investment strategies.. Research shows that almost 68,000 homes in the United States were flipped in Q1 of 2024. Fix-and-flip deals accounted for 1 in every 12 homes sold. The same research shows that investors made an average of at least 30% gross profit for each flip. The 70% rule is crucial in any fix-and-flip deal to ensure profitability, as investors should avoid paying more than 70% of a property’s after-repair value (ARV) minus repair and renovation costs. 

Benefits of Investing in House Flipping

First-time investors with a nest egg to use for investing or access to financial instruments like loans may choose to start with a fix-and-flip deal. House flipping provides a pathway to generate income to finance your real estate portfolio and diversify. It’s important to remember that the purpose of house flipping is to generate profit within a short time. 

While a fix-and-flip deal requires a high level of spending, it can come with major rewards. House flips for Q1 of 2024 had an average gross profit of over $72,000 – with most properties put back on the market within a few months. This gross profit is often used to invest in other properties to help self-fund a real estate portfolio.

Man professional house flippers focus on below market value properties such as distressed or neglected properties. These fix-and-flip properties can improve a neighborhood’s value and enhance the value of surrounding properties. Fix-and-flip properties in up-and-coming areas are the ultimate choice for these types of real estate investors. 

Cosmetic fixers are other focuses, properties that may still offer substantial flipping potential but don’t necessarily involve repairs of structural or mechanical issues. This would highlight the range of property types suitable for fix-and-flip investing, making it easier for novice investors to grasp the versatility of the strategy.

Most investors will explore fix-and-flip deals at some stage in their portfolio. Flipping is an ideal way to diversify your investments and minimize risk, even if your portfolio solely focuses on real estate. Unlike other types of real estate, flipping focuses on cashing out of an investment within a few months for a profit.

Common Types of Fix-and-Flip Properties

There are three common types of fix-and-flip properties that investors can choose from. Each type comes with a different risk profile and may suit a certain type of investor more than others. It’s important to consider your budget and who will oversee the property improvement when choosing between these types of fix-and-flip properties.

1. Cosmetic Fixers

Cosmetic fixers are structurally and mechanically sound properties that are still in a livable condition but may look dated. Most of these properties are single-family units, multi-family homes, and apartments. These properties may need a deep clean with improvements focusing on cosmetic updates, such as fixtures, tiles, cabinets, paint, and carpet.

The key to being able to identify this type of fix-and-flip property is to look beyond its dated appearance to see its potential. Most of the improvements to these properties can be done by an investor themselves to minimize costs. These properties will have all their mechanical components, such as AC and electricity, in working condition. If you’re an investor with experience in DIY home décor or trades like carpentry, this type of fix-and-flip investment is ideal for you. 

2. Structural Fixers

By comparison, a structural fixer requires significant repairs, focusing on the property’s structural integrity. These improvements will be more expensive, however, the property itself is usually sold for a lower valuation due to its condition. This type of fix-and-flip property is not considered to be livable in its current state due to structural elements like the roof, walls, or foundation. Improvement work will focus on resolving these structural issues, as well as making cosmetic improvements.

It’s crucial to work with a contractor and have a house inspection carried out to determine the full extent of structural issues. Profitability will depend on your ability to accurately budget and estimate the cost of these repairs.

Old and neglected houses often fall into this category of fix-and-flip with their structural elements having deteriorated with time due to vacancy. Properties damaged by extreme weather events, like flood-damaged buildings, can also be structural fixers. Properties with structural weaknesses and built without correct building practices may also be potential flippers for the right investor. 

3. Distressed Properties

A distressed fix-and-flip is a property in poor condition or in difficult circumstances that is sold at a below-market value price. Not all these properties will be in poor structural condition and may be considered ‘distressed’ due to the circumstances of the current owner. It’s important to navigate these different types of properties, such as foreclosures and short sales, and understand that these properties may come with their own cosmetic and structural issues. 

Foreclosure Homes

Foreclosed properties are the most common type of distressed fix-and-flipper property. These properties are usually repossessed by a bank after the owner has defaulted on their mortgage with the bank seeking a quick sale to recoup their capital. Foreclosure properties are often listed at a below-market value (BMV) price with favorable negotiating circumstances. Always conduct a property inspection before making an offer on foreclosure properties to accurately estimate the cost of repairs and improvements. 

REO Properties

Don’t overlook the potential of REO properties. These foreclosure homes failed to sell at auction and have been returned to the bank. Banks and lenders are keen to avoid holding onto assets like properties, creating an ideal scenario for fix-and-flip investors to purchase the property significantly below market value. These properties are ideal for flipping as the sellers are motivated, supporting a fast turnaround, with investors obtaining a clear property title without concerns for any liens. 

Inherited Properties

An estate sale can also be an opportunity to purchase a ‘distressed’ property in a better condition. These properties are considered distressed due to the circumstances around the sale. Many families find themselves having to sell a property after the death of a homeowner, usually selling it as-is with a focus on making a quick sale. These motivated sellers are likely to accept a below-market offer to liquidate their inheritance. While these fix-and-flip properties may be dated, they’re likely to be in a better condition than foreclosure properties as they have recently been lived in.

Step-by-Step Guide on How to Flip a Property

Investing in a fix-and-flip property is a great way to start your real estate investing journey. If you’re new to real estate or it’s your first time flipping a property, our step-by-step guide breaks down the process of securing a profitable house flip. 

1. Plan Your Budget

Your budget will make or break the success of your fix-and-flip investment. Staying on budget and managing costs will maximize your return on investment (ROI). Determine the price you’re comfortable paying for a property and use this as your basis. For each property you consider, assess its condition, and calculate repair and renovation costs. With these calculations, you can determine your property’s potential after-repair value (ARV) and estimate your predicted profit.

2. Identify Your Fix-and-Flip Property

There are multiple ways to find a property for the purpose of flipping. While auctions, short sales, and foreclosures are popular sourcing methods, working with a local real estate agent can help you access off-market properties. 

At Privy, our direct-to-MLS data makes it easy to navigate any real estate market like a local with instant investment analysis tools with actionable insights. Privy’s LiveCMA optimizes your investment with property comps and real-time market conditions. 

Privy  automatically identifies similar profitable opportunities, making it easier to find properties for fix-and-flip deals. Privy’s algorithm allows investors to find properties in markets with high investor activity and not just general listings.

3. Make an Offer

After identifying your chosen property, it’s time to make an offer. The property’s potential after-repair value should determine the offer you make. Consider the circumstances of the sale and whether you’re likely to face competition or if the context will facilitate a below-market value (BMV) offer.

4. Establish Your Timeline

The key to success with property flipping is to establish a timeline. Your goal should be the carry out renovations as smoothly as possible to get the property ready to sell within a short period. Cosmetic fixers may only take a month, while structural repairs may take up to 6 months. Set your timeline to ensure you stay on track with SMART goals to track your progress.

5. Hire a Contractor and Carry Out Improvements

Not every investor has the skills or time to carry out improvements themselves. Depending on the level of work, you may be able to hire tradespeople for specific elements, such as carpeting or painting. However, if your fix-and-flip property requires structural and mechanical improvements, it may be more straightforward to hire a contractor to oversee all this work. 

6. Re-list and Sell Your Property

Once your repairs are complete, it’s time to get your property back on the market. Privy can help you network with real estate agents in the local area to get your property listed and maximize the potential for a quick sale. After your sale, you can bank your profit or use it to fund your next fix-and-flip project. 

How Do You Evaluate a Fix-and-Flip Property Opportunity?

The 70% rule is the guiding principle in evaluating a fix-and-flip deal. This calculation should determine the maximum price you can pay for a property, while ensuring the deal is still profitable after repairs are carried out. It’s recommended to invest in a housing inspection prior to making an offer to ensure you have an accurate picture of the necessary repairs to make it market ready.