If you’re a real estate investor, there’s a good chance you’re already familiar with the concept of home flipping. The business of finding homes to renovate and resell for a profit can be very lucrative for investors. Plus, a good flip can net you solid returns in a relatively short amount of time, which can then be used as a launchpad for other investments. However, in today’s competitive real estate market, it can be difficult to find properties that are truly worth flipping. To help you in your search, we’ve compiled a list of tips to follow when looking for a property so you can still have a profitable investment.
Understanding Home Flipping
In order to find a property worth flipping, you need to have a clear understanding of what your goals are with the investment. Ideally, you want to find a home that can be easily renovated in a short amount of time so you can avoid higher holding costs. The best properties to flip will be older or somewhat neglected homes that reside in great areas. Since the location a property is in can have a strong effect on demand, once you have performed renovations the property can grow in value to match surrounding homes.
Setting Your Budget
It’s very important to be realistic when setting a budget for your home flipping project. Besides the typical purchase and renovation expenses, there are also monthly holding costs, as well as marketing expenses and closing costs to consider. It may even be a good idea to leave some extra room in your budget to cover any unexpected costs that may arise. Once you have a good idea of what your budget is, you can begin the search for a property.
Identifying the Right Location
One thing that will always hold true in real estate, is that it’s all about location. We’ve already mentioned how a good area is crucial for ensuring there’s demand for your home, but how do you identify those profitable markets? The answer lies in careful research and due diligence.
Start by taking a look at the data on a particular market to see where things are trending. Populations tend to grow due to a number of factors like job growth, new infrastructure, or developments being made nearby. If you can identify these factors in an area you may be able to profit from investing there. In terms of the neighborhood itself, ensure that it is a safe area with access to amenities like shopping areas, restaurants, or entertainment.
Property Search Strategies
After deciding on an area to invest in, the search for a good property begins. Start with the basics: hire a good real estate agent (if you can find one that specializes in flips that’s even better), and take a look at online listing services for potential properties. Real estate groups on social media can also be a great way to find off-market deals. In today’s competitive landscape, it may also be a good idea to expand your search into alternatives like auctioned or foreclosed homes. Finally, don’t neglect the power of networking in your search; even if your immediate connections aren’t able to help you, they may be able to connect you with someone who can.
Evaluating Property Potential
Once you’ve found a property you think would make for a good flip, you’ll need to run the numbers to determine its actual potential. The best way to do this is by determining the property’s After-Repair Value (ARV), and there are a number of ways to get an accurate number. You can take a look at similarly sized/specced homes in the same area, and you can also hire a professional appraiser to give you a closer estimate.
Before you make the final decision to buy, there are a few red flags you should look out for with any property. Be sure to hire a property inspector to uncover any costly hidden issues, such as foundation or flood damage which can completely kill your profits. Also, you will want to determine the ROI of the project. Generally speaking, returns for home flips lie in the 20-30% range. A number lower than this may not be worth your time, and a higher number indicates a high level of risk that’s better avoided.
Renovations and Improvements
Even if you have the perfect property, your investment returns can be ruined by performing the wrong renovations. You will need to make cost-effective upgrades that add the most value to the property while costing you relatively little. You are better off focusing your attention on key areas like the kitchen, bathrooms, and bedrooms. The upgrades you make to these rooms will have the biggest impact since they will be valued by all ranges of home buyers. Avoid niche upgrades and design choices based on your personal taste, as these may not appeal to everyone and can be a waste of your resources.
Do you have a real estate project you would like to obtain financing for? 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 home flip, RCN Capital has competitive options available. Connect with us today to discuss your next real estate investment.