When it comes to home flipping, there are a number of things you’ll need to consider if you want to have profitable deal. Flipping works best if you can find a home for a good price which you can add lots of value to with renovations. But it’s not always easy to find homes that make good candidates for flipping. If you want to find the best deals, you’re going to have to look in the right places. In this post, we cover some of the best methods to find a property worth flipping, including some basic tips to help keep your flip profitable.
Start with the basics
The first thing you’ll want to do is search your local real estate market for homes to flip. If you haven’t done this already, it can help you familiarize yourself with pricing in your area so that you have an idea of what makes a good deal or not. The easiest way to do this is by browsing online listing sites like Zillow, Trulia, and Realtor.com. Another thing you can do is “drive for dollars”; a strategy that involves you driving around town and looking for distressed properties that may not even be listed for sale. If one really catches your eye, you can go knock on the door to meet the homeowners and put in an offer. This method, sometimes called canvassing or “door-knocking”, can be a great way to find a deal so long as you’re willing to put in a little extra effort.
Work with a trusted real estate agent
An experienced real estate agent that you can trust will be a very important resource in your search for a home to flip. A good real estate agent will be able to find you the best deals on properties before anyone else sees them. You can even ask them to find you a home that would specifically make for a good flip. Along with helping you find a home to buy, they will prove to be instrumental in the selling process too. They can ensure you receive a good offer on your home so that all the time and resources you spent on the project doesn’t go to waste.
If the traditional channels of finding a home to flip don’t work out for you, then you’re going to have to get creative. One of the alternatives to consider are real estate auctions. Auctions can be a great way to acquire a home for a heavily discounted price, but there are some risks you should know about before diving in. Most auctions don’t have or allow for home inspections before sale, which means you could be getting more than you bargained for when it comes to home repairs. For properties like this, keep an eye out for wording like “sight unseen” or “as-is” which will tell you the conditions of the purchase. Once you fully understand these risks, you’ll have to weigh them against the potential savings of going with an auctioned property, and move forward accordingly.
Foreclosed and REO
Another great place to look for discounted properties is the foreclosed market. Similar to home auctions, this is a great way to find discounted properties, but they come with the same risks that auctioned properties come with. REO properties are homes that have already been foreclosed on, and are currently in the possession of a bank or lender. You can put in an offer on one of these properties by getting in touch with the lenders. Finally, there are websites where you can browse and purchase foreclosed properties such as Foreclosure.com and RealtyTrac.
Tips for a profitable flip:
Use the 70% rule
Once you’ve found a property that you think will make for a good flip, you can use the 70% rule to determine if it will be profitable. This rule states that you should not spend more than 70% of a home’s ARV (after-repair value) to purchase it. It ensures that there is enough of a margin built into the deal that it can cover all your costs and leave you with a sizeable return. Note that this rule can vary from market to market, and in areas with a higher cost of living you may have to lower the number to 60 or 65%.
Pick a good market
It’s very important that you pick a home in a market that people will want to live in. You may have trouble offloading a property if it’s in a place that people aren’t moving to, or actively moving away from. You should take a look at the statistics for a market before purchasing a property in it.
Don’t neglect the neighborhood
Just like your chosen market is an important factor, so is the neighborhood the property resides in. Nobody wants to live in an unsafe area, but more importantly you should choose a neighborhood with homes that are higher in value than your selected property. This will leave room for your property to grow and match the values of surrounding homes, and help you have a profitable flip.
RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. If you're looking to acquire financing for a home flip, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.