You’ve heard the term fix and flip and the term buy and hold for residential property investment styles. However, fixing a property to hold it can be a great way to get a taste of both sides, but you can also expect it to have some downsides. Here are a few things to consider before fixing and holding an investment property.
Know Your Comps
Knowing what you are buying and how it compares to other properties in the area. That is part of your due diligence when buying, to begin with. However, if you are planning to rent the investment property you’ll also want to look at the comparable rental properties in the area as well. What type of flooring do they have? Does the kitchen have laminate or granite counter tops? Use these comps to determine how much you need to be willing to spend in order to be competitive in the rental market.
Knowing both your purchase and rental comps will also help you determine the price. Finding comparable properties for purchase can help you determine if you are buying at market value, overpaying, or getting a discount. While the comparable rental properties will help you see what pricing will be at different square feet and interior updates so that you can make a competitive rental price.
Know Your Budget Before You Buy
Doing your due diligence for a fix and hold requires a very in-depth look at what repairs need to be done, and to what extent. If you are picking a home that hasn’t been updated since the 70’s you’ll require a bit more work than one that has some more minor updates that take it from the 90s to now. Price things out with a contractor ahead of time to determine what work needs to be done with more hidden items such as water, AC, electrical outlets and the like, as well as design updates to make the home more marketable and price it out.
Once you’ve priced everything out, you’ll need to use the comps to help you determine what the rent will be and how long it will take to cover that cost and become profitable for you. Ideally, you should look to be out of debt as soon as possible, but think about what makes sense to you.
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