"Fix and flip" has nothing to do with pancakes hot off the griddle, but everything to do with real estate investors making big bucks. It's the nickname for the practice of buying a home, renovating it, and then immediately selling it at a profit.

Recently, however, the slump in the real estate market has left some investors unable to "flip" their properties. There are ways, however, to ensure that "fix and flip" can work-even in a slow market.

It's all in the estimating

The basic "fix and flip" scenario involves buying a house, fixing it up, and then immediately selling it at a price higher than your initial cost, plus the expense of renovation. Your profit depends on how well you can project both your costs and the time it will take to sell the house. To be successful, be conservative in your renovation estimates-these projects generally go over budget and schedule. Next, make sure that you properly assess market conditions. "Fix and flip" can work in a down market if you don't put yourself on an overly restrictive selling time line.

Look to the leasing option

In this scenario, you'll follow the typical "fix and flip" procedures. But this time, you'll sell the property on a lease basis with an option to buy. Naturally, you must make sure that the rent payment covers your monthly mortgage. When it's time to sell, you profit by pocketing any fees you'd normally have to pay to a real estate broker.

There are plenty of lenders who'll provide you with "fix and flip" financing. These programs can include loans for the purchase price and renovations. But for the technique to work, the onus is on you. If you make sure that your time and cost estimates are on the money, your "fix and flip" deals can be as sweet as syrup on pancakes.

Published on January 4, 2011