How to Find Distressed Properties for A Fix and Flip Project

How to Find Distressed Properties for A Fix and Flip Project

The fix and flip market is experiencing high demand right now, due to heightened interest rates combined with continual housing shortages across the nation. Investors are choosing to undertake flipping projects as financing costs make the rental real estate strategy less viable. With all the increased competition, it’s becoming increasingly difficult to find homes that would make for a good flip, but it is still possible. Knowing how to approach your search, what to look for, and which markets to look in, will help you gain a leg up as an investor. Continue reading as we cover everything you need to know about finding distressed properties for home flipping.

Property search hand holding magnifying glass to home

Understand What You’re Looking For

A successful home flip starts with locating a discounted property, typically one that has been neglected for years, and as a result is in distressed condition. The best way to determine if a home is worth flipping is by using the 70% rule. It states that you should not pay more than 70% of a home’s After Repair Value (ARV), minus renovation costs. This helps ensure that you have enough of a profit margin built into a deal that it is worth your time and effort.

If you’re struggling to find suitable properties within the standard real estate listings, it may be time to start looking at alternative sources. Foreclosures, off-market properties, and REO listings are some of the best places to find homes for flipping, since many of these properties already come at a discounted price. Working closely with a real estate agent can also help you find more of these hidden deals.

Research Local Market Conditions

Just as important as the property’s condition is the market that it’s located in. Luckily, there are some key indicators you can use to determine if a particular area will make for a good investment. If a market is experiencing high population growth, increasing property values, or a growing job market, these can be signs of an up and coming area. You can also use more local trends to determine which parts of a market people are moving to or away from. Finally, any location that has significant infrastructure developments is likely to bring up the value of surrounding properties. Be sure to utilize trusted sources like REiDEAL MASTER or ATTOM Data to obtain accurate statistics on real estate markets, which will help you find the perfect property.

Network with Real Estate Professionals

You should never underestimate the power of networking when it comes to trying to achieve your goals. For real estate, you can leverage the expertise of industry professionals to help you find potential properties. There are certain real estate agents who specialize in sourcing distressed properties, and others that can help you find off-market deals before they ever hit the open market. Working with a wholesaler can also be an option, and they might even already have a property under contract that’s suitable for flipping. Finally, you can leverage your personal network to expand your search for potential properties. Your connections might understand different real estate markets better than you, or they may be able to introduce you to others that can help you with your goal.

Consider Off-Market Opportunities

Public records can be a good place to discover off-market properties for home flipping. Often times, the owners of properties in foreclosure are motivated to sell in order to clear their debts. Similarly, you can attend home auctions to find properties at discounted prices. One thing to note is that these properties are usually found in distressed condition from owner neglect. You’ll have to be extra careful not to buy in to a project that requires a heavy amount of rehab, which can quickly eat into your profit margins. Be sure to get a realistic estimate of the time and level of work needed to get a property in good shape before you decide to purchase one of these homes.

Utilize Social Media Platforms

Another good place to expand your search is in real estate groups on social media. There are typically real estate groups specific to local markets, and these can be great places to find off-market properties and motivated sellers. Facebook in particular is filled with real estate groups for markets across the nation. You should still conduct your own due diligence with these properties, especially the off-market ones, as they may not fall under the same regulations as properties on the MLS.

Due Diligence and Risk

On the topic of due diligence, it’s important that you dedicate time to researching any property you come across before you make a purchase. First, you should order a professional home inspection for every property since it can uncover more hidden issues that you may not have noticed. You will also want to look into public records specific to the property, so you can identify any title issues or liens that may complicate the sale of the home. Finally, you may want to consider a fallback plan if you’re having trouble offloading your newly renovated home. Renting it out for a period of time can help you recoup some of the project’s costs and allows you to sell when market conditions are more favorable.

RCN Capital

The easiest way to save on your next investment is to obtain financing from a real estate lender that can get you the best leverages and rates. 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 are looking to finance a fix and flip project, RCN Capital has competitive loan options available.