Fix & flip projects are real estate projects in which an investor purchases a property, renovates or improves it (the “fix”), and then resells it within a short period of time for a profit (the “flip”). The goal is to increase the value of the property through renovation or strategic improvements, such as modernization, repairs, or optimizing the layout.
Characteristics of fix & flip projects:
- Short term: The projects usually have a short time horizon, often a few months to a year, depending on the extent of the renovations and market conditions.
- Active investment: The investor is actively involved in improving the property, sometimes even in collaboration with contractors and architects.
- Focus on profitability: The profit is made by selling the property for a higher price than the purchase and renovation costs, including financing costs.
- Risks: These projects depend on factors such as renovation costs, schedule, market demand, and economic conditions. Losses are possible if the sales price is lower than expected.
Example:
An investor buys a dated apartment for €150,000, spends €30,000 on renovations, and sells it within six months for €220,000. The profit after deducting costs, such as financing costs and taxes, is the return on investment.
Fix & flip projects are popular with real estate professionals because of the potential for high returns in a relatively short period of time. They are also an important category for the use of bridge loans, as this form of financing offers flexibility during the renovation phase.