Home flipping is a great strategy for investors looking to make a quick return in real estate. A fix and flip project can easily be completed in 6-12 months, and the money it provides to investors can also serve as a launchpad for other, more permanent investments. The best way to ensure that a fix and flip deal is profitable is by doing enough research and familiarizing yourself with what makes a home worth flipping. There are many different aspects to consider, from the property itself to the neighborhood it resides in. In this post, we cover the different things to look for in a potential fix and flip investment, as well as some key tips for keeping your deal profitable.
Tip #1: Research Different Markets
The first step to having a profitable flip is identifying real estate markets that have healthy demand, particularly for new or renovated properties. There is no point in dedicating time and resources to a real estate project if nobody is willing to buy the home afterwards. You can start by looking at the data on home sales in a market to see what types of properties are selling, and if higher-value homes regularly make the list. You may also want to look at demographic trends to see if people are moving to the area, which will also likely mean increased demand for housing. Certain markets may be experiencing high job growth, which can be another good indicator of demand in the future.
Tip #2: Evaluate the Home’s Neighborhood
Once you have decided on a specific market to purchase a home in, you will most likely start browsing property listings. However, it’s important not to neglect a home’s surrounding area when looking through potential flips. A good neighborhood can have a massive impact on a home’s value, making it much easier to sell when it comes time to do so. For example, if there are amenities or new developments happening nearby, it’s likely that an area will be in high demand. Your goal should be to purchase a lower cost home in a great neighborhood, so it can then grow to match the values of surrounding properties.
Tip #3: Look for the Right Property
Finding a good home to flip can be tough, because it must be in repairable shape (but not beyond saving) while also being in a good area so you can resell the home easily afterwards. If you’re struggling, it may be a good idea to browse beyond the typical online listing services. Foreclosure listings are a great place to start since these properties often come in at heavily discounted prices. You can also attend home auctions to find similarly good deals. However, the real gems will be found off-market. You should work closely with a good real estate agent as they will be the ones who can find you these homes before they ever reach the open market.
Tip #4: Assess the Property’s Condition
The key to a successful home flip is making cost-effective upgrades to a property that can add lots of value while costing you relatively little. That’s why it’s very important to take proper measures before you decide to purchase a fixer upper home. If a property is in too poor of a condition to be renovated in a cost effective way, you’re better off avoiding that investment. Water damage and structural damage, like a cracking foundation, can be very costly repair and completely eliminate your profit margins.
It’s recommended you pay for a professional home inspection before signing any paperwork. They will be able to uncover any issues that you might not have noticed, and can also give you a realistic estimate of the repairs needed to renovate a property.
Tip #5: Run the Numbers Carefully
You will have to take care when you’re running calculations to determine the profitability of a deal. The more work you do beforehand, the more likely your project will turn a profit. You will need to ensure you’re obtaining accurate numbers for the project’s budget, as well as the ARV of the property once work is completed. You can get a more accurate number for final sale value by looking at comparable sales in the same area as your chosen property.
When determining a project’s budget, be sure to include all expenses aside from just the acquisition and renovations costs. Things like taxes, carrying costs, and the actual cost of running your business should be included. It can also be a good idea to leave a buffer in your calculations to cover any unexpected costs that may occur. The rule of thumb is 10% for each line item. Even if you don’t need the extra budget, it will just end up being added to your profit margin.
Bonus Tip: Get your financing in order
It can be beneficial to already have financing in place when you’re in the process of finding a good home to flip. You’ll be able to move on a deal as soon as you come across it, and you won’t have to tell the seller to wait until your loan is approved. For fix and flip investments, you should also consider working with a private real estate lender. These lenders offer loan programs designed for home flipping, with shorter terms ranging from 6 to 24 months as well as funding provided to cover renovations.
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. RCN Capital has competitive loan options available if you are looking to finance a home flip. Connect with us today to discuss your next real estate investment.