Common Sense House Flipping

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I first started my Real Estate investing in 2003 when I bought my first house as a homestead property. Since then I have bought and sold about 20 houses and in 2016, my wife and I decided to go at it with all our might.

By 2015, we were holding 2 town homes and were living in a 3,500 sq ft single family home. At the end of 2015, we sold everything we owned and cashed out… giving us enough money to start 2016 buying, rehabbing and selling houses. In the last 18 months, we have moved 11 homes. 

Lets start by defining a key word – ARV. Remember this word… ARV stands for the “After Repair Value” of the property you’re potentially going to flip. It’s the amount that the house will sell for after it’s rehabbed, repaired, and ready for the new owners.

Finding the perfect deal – This is really the hardest part. How does one find the perfect deal? There are many ways and a lot of people will go straight to wholesalers in hopes of finding the perfect deal. We have found that these types of sellers make it hard to make the margins you need however it can be done.

Here are a few things we have learned along the way. I like to call them the “common sense” ideas for flipping homes.

1.       Stick to your numbers: The magic number, regardless of what you pay for the house is 70%. You never want to be in for more than 70% with rehab of it’s ARV.

That means, you buy and rehab the house for 70% or less of what the final selling price will be. If you go over this number and disregard the formula, you’re screwing yourself and your investors and will see little to zero profit. The magic number for real estate investing and house flipping is always 70%.

2.       Know your local market: Keep in mind that this isn’t a reality TV show. Its real life and it’s important for you to know your local market. This is where you live, work and play and it is reality. Here are a few things to know.

a.       Know your local schools

b.       What are the demographics of the city you are buying in.

c.       Is the home your buying in an established area or “up and coming”?

d.       Are you in an area with rising home values?

You have to know this stuff because when you do, it’ll help you choose (and dominate) your niche and figure out your profit margin. Do your homework on recent sales, comps, and what the average amount of days properties like yours will sit on market. This will help you figure out good deals and spot bad ones. This will help you negotiate prices (as a buyer and seller), buy low, and sell high. It’ll also help you determine what type of house flip you want to pursue.

When you know your market, it can mean the difference between buying and holding a property (maybe you want to rent it for awhile until the neighborhood takes off) for a few months or years, or doing a “Fix N Flip” which means you buy, rehab, and move it off your roster quickly.

3.       Know your buyers and rehab for them: Once you know your numbers and market, make sure you know what types of buyers are in the area. If you flip a property next to an elementary school, you’re rehabbing for young families with kids. You have to rehab the house with the types of people who will be living there in mind It doesn’t matter WHAT YOU LIKE, it matters what THEY LIKE.

Most older homes don’t have the open kitchen/family room plans that young families like. So you have to create these spaces, or market and sell to older couples. Every house and flip is different. If you have a property in a nice, younger subdivision, spend your money making the family room open and inviting.

Make sure there are enough bathrooms. Make sure there’s a master bathroom. Maybe a playhouse in the backyard would help. Maybe a bonus room upstairs for the kids (or adults) would be nice.

Whatever you do, remember this: there’s no magic bullet or a proven formula that works every time here. We have found that sticking to a style that works is really the only true fomula that has worked for us. Once you know buyes like your styles, you can stay close to that each time. House flipping and rehabbing requires common sense and wisdom, so use them.

4.       Show off your new house: You put in the work, so make a list of what you did and let the buyers, agents, inspectors, and appraisers see it. Show them every system that was replaced or added on (e.g. HVAC, electrical, structural problems you fixed, appliances, hot water heater, etc.).

If you replaced the roof or all the windows in the house, let people know. Buyers need to know and see it, this will help creates peace of mind for the buyer. Did you put a new garage door and opener in, and new sprinkler systems? Remember to include all the upgrades within the home.

When you create value, make a note of it and when the property goes up for sale, put it all in a binder and leave it on the table. You want EVERYONE who walks into your house to know everything you did to it to make it better. That’s how you sell a house.

5.       Don’t get greedy: Do not overprice your property. If you do it won’t sell and you’ll end up holding onto it (and paying for it) for longer than you wanted to.

It’s tempting to overvalue the home. After all, you bought it, fixed it up, and put a ton of time into it so you want your value out of it right? It’s understandable, but don’t do it. Stick to the ARV and it’ll sell at the right price. You have to keep in mind that the buyer probably didn’t see the house before you started fixing it up.

They don’t know that it needed a complete redo. They have no idea how much time you put it, and how much stress it may have caused you. The buyer sees the finished house you’re selling. That’s it. They’ve been shopping comparable homes, and when they walk into yours they’re not thinking about how you fixed it up – they’re just thinking about what it’s worth and if they want to live there.

Every neighborhood has a general price point, and you need to stay within it. Underpricing slightly could result in a bidding war which is really what you want. This will drive up the price and hopefully get it to a price that you were hoping for..

 

So price appropriately. Don’t undervalue or price high. Sell it for what it’s worth and you’ll do great as a house flipper.