Do you watch episodes of “Flip or Flop” not once, but twice? Are you devoted to the Scott Brothers on HGTV? Are you obsessed with the thrill of the chase and envision you and a sidekick conquering one house challenge after another? If yes, you may be ready to turn your fascination with fix and flips into a fix and flip business for yourself and/or a partner or two.
The WalletHub has done extensive research on the fix and flip aspect of the real estate industry and suggests that anyone considering jumping into this slice of the market do the same. Market potential (gross return on investment, median purchase price, the percentage of home flips, and the home turnover rate) in a specific city is one topic to study. Renovation costs (kitchen, bathroom, full home and construction worker salaries) is another. Quality of life index (crime rate, school rankings, job growth, rate of economic growth, etc.) is the third aspect.
WalletHub’s highest gross return cities at the end of 2016 included Pittsburgh, New Orleans, Philadelphia, Cincinnati and Baltimore. Its lowest gross return cities included many in Texas (Dallas, Fort Worth, Arlington, Plano, Austin). WalletHub’s lowest renovation costs cities in 2016 included Little Rock, Memphis, Des Moines, Peoria and Knoxville. Its highest renovation costs cities were Yonkers, Fremont, San Jose, Atlanta and Boston.
If considering whether or not to form a partnership in a fix and flip business..
- You may have to join up with a partner if you have the capital but not the time to find the deals or the expertise to make repairs and/or do the renovation work or the neighborhood/market knowledge. Or you may have the time, expertise and market knowledge but need a partner to contribute all or part of the finances required to buy potential fix and flip properties.
- You may need a partner to research buying costs, carrying costs, repair costs, selling costs, etc.
- You may need a partner who has expertise in marketing, selling, negotiation, etc.
Or you may not. Remember that the purpose of a having partner is to provide you with something you don’t have, and/or something you can’t or don’t want to do. Obviously, if you have a partner, you give up some profits (and control) to compensate your partner for contributing her/his finances, time, expertise and sharing the risks. If you don’t need such things from a partner, the question becomes…why have one?
Lastly, if you determine you do need and/or would like a partner for your fix and flip business, make sure you have a written partnership agreement written by an attorney that is signed by all parties.