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Successfully executed, a buy-and-flip strategy is the quickest way to create immediate capital gain (equity) within the property, because once renovations are finished, the property is worth more.
Often, this strategy can be used by investors who are just starting out and need more equity to become buy-and-hold investors.
So by painting the walls, adding a bedroom, or changing the carpet, you can increase a property’s value relatively quickly and then sell for a profit.
As we mentioned earlier, we Kiwis like the idea of painting a room, ending our day tired, our clothes weary with paint drops. It’s a bit of a dream.
But it pays not to lose respect for the technical aspects and knowledge required to execute this strategy.
As much as it may sound like: “Let’s paint a room a nice colour”, if you want to be a successful “flipper” you need to know your stuff and have an eye firmly on the numbers.
In fact, the buy-and-flip strategy is a good option for people with a background in construction who have the skills and expertise to do renovations.
You need to know how to cost-effectively add to the value of the property, and then you need to have the know-how or the money to carry out those renovations.
Because any dollar you spend is a dollar off your profit margin. While that’s true for the BRRRR strategy too … the cost of the renovation is less of a concern for long-term investors since they also make money through rental income and market-made capital gains.
But one drawback, if not the biggest drawback, is once you sell the property you don’t make any more money from it.
That might sound obvious, but selling a property straight away to make way for the next project means you miss out on potential rent – the weekly cashflow figure you’ve just increased with all your renovations.
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