House flipping is an increasingly popular method of real estate investing which can be highly profitable if the investor is able to take the right steps at the right time. Despite this popularity, not all house flips are successful or profitable, and less experienced investors may find themselves in a tough financial situation if they have not sussed out all the details first.
If you’ve flipped a house before, you’ll know that this type of investing takes a lot of time and effort. The process of managing a flip requires a lot of active oversight, meaning this is not the strategy for you if you’re looking to make passive income with little input needed. If you’ve never flipped a house before but are interested in getting started, then you have come to the right place. In this article you’ll learn what all the questions are that you’ll need to answer before getting started in house flipping:
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Is The Purchase Or Sales Price More Important?
The purchase price is the most important factor to pay attention to in the majority of house flipping cases. The purchase price of the home you are considering buying will have far-reaching implications for other parts of the deal, like how much funding you’ll need to put together or what you’ll price the property at when it has been completed. The ideal purchase price for a house flip is under the average market value, and it’s not uncommon for these homes to need significant repair to be ready for sale.
Sales prices, on the other hand, are limited. This refers to the price set by you, the new owner, on the home when it has been completed and is ready to go on to the market. Your sales price will be limited by the square footage of the home and the average value for that size in that neighborhood, for example.
Where Do I Find Properties To Flip?
One of the key parts to a successful flip is finding an undervalued home in a sought-after location with lots of demand. Finding a house to flip might not be as easy as going on to Zillow and looking for homes, although this is a good place to find comparable data. The chances are good that you’ll have to deal with competing offers, and this is one of the reasons that online listings will not always yield the best results.
More experienced flippers will usually make use of more than one source to find undervalued properties. The first is foreclosed homes – properties put up for auctions by banks following non-payment by a homeowner. These types of homes can sell for under their market value but come with the caveat that they must be purchased ‘as-is’ and you may not be able to inspect the home thoroughly before closing. It’s also worth noting that houses go into foreclosure for a variety of reasons, some of which can cause the properties to be in less-than-ideal condition.
Another good source for properties to flip will be to go off-the-market. These are homes that are not formally listed for sale and require the investor to do direct outreach to the owners with the hope of persuading them to sell. This will include tactics like leaving business cards or notes in mailboxes, speaking to neighbors, and driving around to find potential homes. The secret to this method is being a good communicator and going in prepared – if you’re planning to make an offer on a home that’s off-the-market, you should do so knowing what the average property price in that neighborhood is. You’ll stand a better chance of getting your offer accepted if you make an offer in the right range.
Other ways to find potential flips include keeping track of the local probate court or divorce court proceedings, and even reading local obituaries. It helps to look out for homes that have a solid underlying structure and only need a few cosmetic repairs in order to be market-ready. For your first flip, you want to be wary of taking on a home needing extensive plumbing or electrical work or repairs made to the foundation. These are serious projects that can quickly go over budget if not handled by someone with experience.
Lastly, there are niche online tools that are freely available to house flippers and can help them track down good property deals. FlipScout by New Silver is one such tool and investors can even set up search criteria and get leads on undervalued homes delivered to their inboxes.
Which Renovations Add Value?
Renovations are a big selling point for flipped homes, but it’s essential that the investor focus their attention on the upgrades that will add the most home value. The reason is twofold; to start, you don’t want to spend unnecessary money on things buyers won’t be interested in. The second is that targeting specific upgrades will help narrow your focus and ensure you’re keeping to your planned timeline.
The renovations that have been found to be highly-ranked with homebuyers include kitchens, bathrooms, additional bedrooms, or flooring. Outdoor spaces like decks have also rated well, and spending time doing up the outside of the home will also add to the curb appeal. These are all renovations that may sound expensive off the bat, but there are several ways investors can cut down on the cost while still improving the overall home value.
Certain upgrades like repainting or changing up the lighting can have a huge impact on potential buyers, and can easily be DIYed by the investor to save on the cost of labor. It’s perfectly acceptable for the investor to take on these renovations by themself, but it’s important to leave the more complicated jobs to the professionals. Professionals are able to complete the job within budget the first time around, and you don’t want to spend money redoing things because they were done poorly at the beginning.
How Long Will The Flip Take?
Part of your house flip planning will see you estimate a general timeline of how long the renovations will take before you can sell the property. This includes doing an evaluation of the state of the property, taking a closer look at what needs to be done, and getting estimates from contractors on how long these projects will take. Some projects will be more time-intensive than others, especially if there are hidden complications (often the case in older homes).
A house flip can take between six months and a year depending on how experienced the investor is with house flips and the circumstances around the flip. If you’re flip is DIY-heavy or the home is in rough condition, you’ll want to add additional wiggle room in your timeline. You’ll want to work closely with your property appraiser and general contractor to get a clear idea of what needs to be done and how long it will take. From there, make sure your projections are leaning towards the higher end of the time range.
How Will Market Conditions Affect My Flip?
While real estate is a hardy investment asset and there is arguably never a bad time to buy, market conditions can have an impact on your flip and total costs. Some markets are more lucrative than others and will suffer less fluctuation as a result of the level of demand.
There is an ideal market condition that you’ll want to replicate when buying and selling. For house flippers, markets that are seeing a spike in housing prices are not necessarily the best place to invest due to high asking prices. It’s more lucrative for flipping investors to target up and coming markets that are on the verge of becoming big.
The majority of house flipping investors prefer to buy property in a neighborhood that they are familiar with, but there are options available for flipping houses out of state. The important thing is to do research about all the local real estate data and talking to other real estate professionals about the typical home prices. Be sure not to make your mind up about a neighborhood until you have looked at it from all angles.
Is It Possible To Flip More Than One Home At Once?
Many house flippers actually handle more than one flip at a time, and it’s normal for these types of investors to line up funding for the next deal before the current one has been completed.
Since most house flips will take up to a few months, it makes sense to keep an eye on the market and make offers so as not to miss out on any opportunities. Flipping does usually have some downtime which allows the investor to split their priorities – having a trusted contractor oversee these projects will also add to the ability to do more than one flip at a time.
If your plan is to try and make a career out of flipping, you’ll need to establish a good relationship with a lender that is able to grant you multiple loans for different projects.
These are just a few of the questions to ask before flipping houses, and it’s up to you to make sure you can answer them confidently prior to making an offer on a home. Research and due diligence are two of the most important parts to successfully investing in house flips, and if you’ve fulfilled these requirements then you are unlikely to end up with a money pit or property that is impossible to sell.
Apart from doing your homework, make sure you pay attention to the trajectory of the market you are buying into and that you are getting the best deal possible. Be wary of too-high asking prices and remember that the asking price will have an effect on your final selling price.
House flipping is a delicate balancing act, and you’ll need to keep a careful eye on your budget and projected timeline. The longer the property is in your possession the higher the carrying costs will be, so you want to stick to the plan as much as possible and sell the home as soon as you can. Once you’ve mastered the process, taking on more house flips becomes a breeze.