The number of homes flipped in the U.S. is at a six-year high. In Q2 of 2016, a total of over 50,000 flips of homes and condos were completed, according to information from RealtyTrac. The ROI for flips is also up considerably, averaging 49% this year, nearly doubling the returns seen 10 years ago, before the housing crisis.
So there’s money to be made, but there’s still no thing as easy money. Successful flips take meticulous planning and informed decision-making. One critical element of this is choosing the right property for your flip. Information is your friend here, so it’s essential to take the time to understand the market as well as the individual property history as fully as possible. Here are some questions to ask yourself when you’re looking for the right deal.
#1 - #7: How is the local market doing?
The levels of recovery following the downturn vary greatly from place to place and even by neighborhood. Take advantage of data that is available to get a clear picture of the current state of the market, as well as what factors might be at play in the months and years to come. Some specific questions related to market would be:
- What prices are homes selling for in the neighborhood surrounding the property?
- How many properties are for sale in the area?
- How long are homes taking to sell?
- How many are foreclosures or short sales?
- Have there been other flips nearby?
- Are there significant development projects in the area that might attract new residents?
#8: How much would you need to invest in the property?
Get down to specifics about the costs and time involved to bring the particular property up to snuff. Will the work be primarily cosmetic, or are more extensive structural and systems renovations needed? Get guidance from a professional inspector to identify issues, and then get quotes on the jobs you will need to contract out. Consider the added time that will be involved as well, since holding costs mean that time is money.
#9: Do you have the capital you’ll need?
Don’t go into a flip until you’ve crunched the numbers. Repairs and renovations can be very costly, and they won’t be the only expense. You’ll likely be paying contractors for part of the work, and there are also utilities, insurance and taxes on the property to consider. Itemize these to the penny to create a realistic budget for yourself.
#10: What is the potential resale value?
Keep in mind that your selling price will have to match up with comparable prices in the local market. It’s not a matter of tacking the price of improvements onto your purchase price. Make sure that the price you’re paying for the property is low enough to allow for the profit you’re looking to make. You’ll need to look at distressed properties selling well below the average for their area.
It’s critical to cover the bases before you buy a property to flip. Ask professionals for insights and advice to choose the right deal.
Whether you’re an experienced flipper looking to borrow funds for your next flip or an investor searching for the right project, be sure to explore your options on Patch of Land today. We’re always just an inquiry away and look forward to helping you make smart, sound investments. Connect today!