What is a Fixer Upper?
For those unacquainted with the term, fixer uppers is real estate bought from distressed home owners, fixed up (hence the term fixer upper) and sold at premium prices. In a way it is like finding a jewel in the rough, polishing it, and sending it back to the market for a good price.
Many have gone on to be millionaires from this kind of venture. If you look at it, theoretically, it makes a lot of sense. However, no matter how attractive it may seem to be, this type of business isn't without its risks.
Fixer Uppers involve a lot of money, assumptions and risks. You assume that the real estate you are buying can be fixed up and sold at a higher price. You also assume that the house can be brought up to a state where it is attractive to those seeking a home to move into.
If you put all these intangibles together, you will find that the risk may be a little too high for some people. In fact, this is the reason that these ventures are high-profit ones, they are also high risk.
You can, however, reduce this risk by doing good background studies, setting realistic goals, drawing up good plans, and making calculated risks. Here are some good tips on building a good fixer upper business venture.
1. Goals – You will have to set realistic goals for your business. Fixer upper homes can earn a good deal of money, but it wouldn‟t hurt to set a conservative figure as you learn the ropes. Sometimes conservative is good – especially when you are just starting to get the hang of a venture.
Some people set unrealistic goals, like aiming for $100,000,000 at the onset, hoping against all hope they can make and sell at an incredible rate. However, it would be better to keep with a realistic figure. Most fixer uppers will agree that $100,000 is a good amount to expect per year in a fixer upper venture.
This figure is taken by considering the sale of 5 fixed up houses with a cut of $20,000 per house. This isn't a bad figure to start with. And you will be able to adjust better figures as you learn more about the business.
You will also have to consider what this business will mean to your life. Will you give up your day job just to focus on this business? Will you do this on your own free time? Or will you try a little of both to see where you do best.
2. Properties – Make sure you don't put all your eggs in one basket. This could lead you to losing more than you are willing to in one venture. Depending on your source of financing, you could handle one or more properties at a time. Again, it will be advisable to start slowly before gradually increasing the number of properties you handle at one time.
3. Sell or Keep – Some fixer uppers will decide to fix and keep, instead of fix and sell. This is not folly, but shouldn't be performed without prior thought. If, with your research, you learn that the property rates for a given land ameliorate pretty quickly per annum and that you stand to earn more if you hold the property for a while, then do so.
If you see that you don't stand to earn much by keeping it, then put it on the market as soon as you see fit. On the other hand if you notice that prime property is creeping towards the property you are fixing up, holding on for a while might not be such a bad idea.