House Flipping 101
A how-to guide on House Flipping involves research!
Last month we provided a brief introduction into the basics of House Flipping. For a refresh, you can watch the video here! We reminded you that flipping houses is not as simple as it looks. We want to help share our tips and experience.
This month we will explore Step 2: Research! Educate yourself!
The absolute, most critical tip we can provide, is RESEARCH! You will need to research the basics on house flipping, your geographical areas and the economics of your local market. Think of it this way: if you buy a house in a run-down neighborhood that historically sees infrequent price appreciation, no matter how good the sale price appears, it is not a good investment, as your target buyer will still offer below market value. There is no profit to be made there! Thus, you need to be familiar with the full scale involved, the locations, and the economics.
Research: Educate Yourself
House flipping, as we have repeatedly advised, is not as easy as it looks. Review blogs, watch HGTV shows, and redecorate a room or two in your own house, unfortunately, are not enough to tackle a huge project on your own. Are you prepared for the costs involved? Will you have a team in place to help advise you of location and local market values as well as construction and finishing design? Do you have an agent that will help you sell the house upon successful completion of the rehab? Don’t go into a project blind. Familiarize yourself with the entire process and evaluate whether or not you are fully ready to commit before you move forward.
Location, location, location! I am sure you have all heard this phrase when it comes to home buying! Some locations are more profitable than others. You can build a gorgeous, dream home but if the area is not desirable, your profit will be hard to find.
Take a look at the areas you want to invest in. Know the areas well…are the school districts good? Does the area generally have many houses for sale, boarded up homes and vacant properties? If the location is saturated with low valued properties, it is highly likely the neighborhood right now is not the time for this type of investment. Is the area overrun with crime or similar problems? It may make the home harder to sell, no matter how nice you’ve turned it. These are important factors to consider when scoping areas for your investment.
Keep your eye out for areas that have steady or increased market values; multiple offers or bidding wars on houses for sale; an increase of buyers; older homes (these homes require more work and potential); areas with elderly homeowners (as you will find an increased potential for retirees or people looking to downsize or relocate). Is the neighborhood close to stores and highways as well as public transportation?
Why not research the neighborhood as if you were also the potential home buyer? Familiarize yourself with the neighborhoods that you see investment potential. What are the tax rates typical for the neighborhood;s properties? Are they notoriously high, thus a deterrent for a potential buyer? Are there public beaches and parks to utilize? Check out the websites of the school districts and view any accomplishments or awards as well as any possible issues.
Eventually your list of potential neighborhoods will decrease as you find the best possible potential for your investment. You may then want to seek out the expertise of an agent or two familiar with the area.
Research: Local Economic Market
Obviously, houses within a certain neighborhood will sell within a particular price range. Note that there are factors that will affect home prices within the neighborhood. Typically, this includes seasons/time of year. Normally, homes sell more frequently in the late spring and summer with higher prices; whereas homes within the winter sell for lower prices and longer sit on the market. Is this typical trend happening in your market? Therefore should you wait for the season to change to find your investment property?
In some areas, there may be demand but the buyers are sensitive on price. In others, the supply is great and therefore the price will be lower. If the market is not favorable to you, perhaps you may be better off waiting for a shift.
Once again, mind the taxes! Property and school taxes will have great affect on the sale of the house…and these are taxes you will have to pay for the duration of the rehab! Remember, the higher the taxes, the buyer may want to compensate for the added tax burden elsewhere (ahem, lower priced home sales!). Sometimes the price
Do not underestimate the effect that real estate and school taxes can have on the pricing and salability of a house. The higher the real estate taxes, the lower the selling price of the house has to be to compensate the borrower for the added tax burden. Often, it is not the price of the house, but the annual real estate and school taxes that have the most impact on a potential buyer’s ability to afford a home.
As with the local school district and other factors, make sure that when you are looking at comparable sales that you are looking within the same municipality and county as the subject property. If you don’t the comps may paint a false picture of the after repaired value of a property. You must make sure that you are looking at true comps, and not just houses that look like the one you want to invest in.
Also, remember that you are going to have to pay the real estate and school taxes during your house flip, and that is money out the door that must be accommodated in your pre-purchase financial planning.
Research: Random Tips
Find a mentor! (Me, anyone?!) Ask questions over coffee. Picking your mentor’s brain is a wonderful way of research.
Consider partnering up with an experienced investor on your first go.
Take your time and don’t rush into your first investment.
We hope you will begin to share our love of ‘we buy ugly houses, fixer uppers, or those in need of just a little TLC. So if you have questions and want to pick our brain…or if you need to sell your dated home for cash, or you need to sell your as-is home quick, call us at Long Island Cash for Homes. Don’t forget to watch House Flipping 101!
As always, for more info or questions on what we do, contact us!