For both beginner and experienced real estate investors, home flipping can be a very profitable opportunity. It provides great returns for investors in a short period of time, especially if you know how to flip a house quickly. But not every property will make a great flip, and there are certain features a home needs to have to make it worth flipping. Knowing these specific items can help you find the right home which will make your investment more profitable. Continue reading to learn the things you’ll want to keep an eye out for if you want to have a successful home flip.
A great neighborhood
You’ve heard it before, but location really is everything when it comes to real estate. It’s even more important with flipping, because you don’t want to be stuck with a property in an area nobody wants to live in. Buyers will be looking for homes in safe neighborhoods with amenities like good schools and shopping areas close by. It’s also better to purchase the worst home in a great neighborhood than the best home in a bad one. Since your goal is to perform renovations, buying a lower value home in a good area means it will have room to rise and match the value of surrounding homes.
A home that needs updating…
The second most important thing is to find a home that you can add some value to. You’re looking for a property in need of some light renovations which you can perform quickly. You can add a lot of resale value to a home by focusing on high-traffic areas like the kitchen, bathrooms, and living areas. The exterior of the property may also need attention. If the home looks neglected, a fresh coat of paint or new siding can really help with a property’s curb appeal.
…but not one that’s in rough shape.
While you do want to be able to rehab a property, you also don’t want something you’ll need to invest too much in renovations for. There are certain homes which will simply require too much work to make them worth your time. You also need to watch out for properties with major issues like damage to the foundation, which can be expensive to repair and completely eliminate your profit margins.
Something with broad appeal
You should look to purchase a home that you know will appeal to as many people as possible. It will be difficult to sell a property if it has features only certain people will like. You also need to be careful not to make renovations based on your personal tastes. Choose renovations with mass appeal, and if you are spending time repainting be sure to stick to a neutral color palette.
Enough room for profit
In order to have a successful flip, you will need to add enough value to a property to cover rehab, closing, and holding costs while still being profitable. Once you have found a home, you can use the 70% rule to see if it’s worth flipping. This rule states that you should not pay more than 70% of the after-repair value (ARV) of a property, minus expenses.
For example, let’s say you’ve found a home selling for $150,000, and estimate it will take $25,000 to renovate the property, after which it will be worth $220,000. This deal seems decently profitable, but let’s run the numbers. 70% of $220,000 is $154,000, minus $25,000 in repairs leads to a final max value of $129,000. For this deal, there is not enough of a return built in to make it very profitable, and it would not be recommended to purchase this home for flipping.
One that you can flip quickly
The best homes to flip are the ones which only need small upgrades that you can finish quickly. Experienced flippers can complete a project in 3 months, and there’s a reason why. The longer you hold onto the property the more you will pay in holding costs like utilities and insurance on top of the mortgage payments. Ideally, you’ll want to perform renovations that cost you little time and money but have a big impact on bringing the home up to date. A perfect example would be new lighting fixtures or new paint for the rooms. Stick to these smaller upgrades as you don’t want to over-improve and have a home that will be out of a buyer’s price range.
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 an investor looking to finance a home flip, RCN Capital has competitive loan options available. Connect with us today to discuss your next real estate investment.