How To Successfully Flip A Home

Steve starts the first segment of Real Estate Round-Up for 2018 with Terry Story’s tips on the requirements to be a successful home flipper.

Do Your Research

For starters, Terry says, effective home flippers know how to find a great deal and purchase homes at about 44% below market. Finding homes at steep discounts isn’t easy though. Expert flippers spend time looking for below-market properties online and by digging through courthouse records for bargains. They often purchase properties sight unseen because they really know the neighborhood and what comparable properties sell for.

Steve likens successful home flippers to stock investors who recognize the real value of beaten-down stocks and are willing to take deep positions in them.

Know Your Market

Further, home flippers know the end game all along, the full market value and final sales price of the home they buy, and the right target audience. To make a profit, they know exactly how much to invest in the house, and what to price it at for a quick sale.

Buyer Beware

Steve warns buyers of flipped homes to beware of shoddy, cosmetically focused workmanship and recommends inspecting the home thoroughly to make sure renovations were up to the mark.

60% Return

Terry adds that home flippers typically sell in the $100,000 to $200,000 price range, with average gross returns of about 60%, and with a flip typically completed in about 128 days from purchase to renovation to sale, which is incredibly quick. To do so, flippers have a whole system in place, with clear renovation plans, workers at the ready, and funds on hand to make it all go smoothly.

Steve compares this to evaluating a company’s inventory turns. Inventory ties up capital and warehouse space, so the sooner it’s cleared it out, the better. Similarly, if you sit on a home that you’ve renovated, you cannot free up capital to deploy it elsewhere, and your profits will be lower.

How To Spot Markets Ripe For A Flip

To spot markets that are ripe for flipping, successful home flippers look for telltale signs in markets across the country. For instance, they look at future development plans or applications for building permits to get a sense of whether a developer, a major business, or a retailer plans to move in and make the neighborhood more attractive and drive up housing.

When Does Home Remodeling Make Sense?

Next, Steve wants to know if people should remodel homes to sell them for more. Terry’s answer is a firm “no” because you only get back about 60% of what you put into the remodel. So remodeling only makes sense if you plan to enjoy the upgrades for yourself or if the house is falling apart and needs major repairs.

Moreover, buyers may not have the same taste as yours, so there’s added risk if you remodel just to get a higher price for your home. Instead, save your money for necessary infrastructure improvements such as a new roof or a new air conditioning system.

Older Citizens Selling Homes

In closing, Terry notes that she’s seeing a new trend of older, cash-strapped citizens looking to sell their homes, something she hasn’t come across before. Steve sees a similar trend in his investment advisory practice where people have a lot of money tied up in their homes. If money is an issue, he believes one should release that equity, thereby turning an illiquid asset into a liquid asset, invest some of it, and carefully spend the remaining principal to improve one’s quality of life in retirement, without the added headache of worrying about maintaining a property.