7 Things to Look for in a Fix and Flip Property
If you are a house flipper, you must have a very careful analytics process to determine which fix and flip properties will be worth the investment. You have to spend money to make money, and you have to be smart with all aspects of a house flipping transaction. You want to find a great house at a great price. You want to get the renovations completed efficiently. You have to get a good resale price when it comes time to sell the property.
With these house flipping goals in mind, here are 7 things you should be looking for in a fix and flip property:
They say “location, location, location” are the three most important words in real estate. This is very true in house flipping. Study the market carefully. If you buy a house for a good price and then fix it up, what kind of resale price range can you expect based on other current home values and market trends? There may be a reason why you find a property so cheap in a certain neighborhood. The location can make or break many real estate investments.
2. Market Trends
On the heels of the section above, you really want to carefully monitor housing trends in any area where you are considering investing. Look at recent sales data, including price ranges and how long homes take to sell on average. How long has the property been sitting on the market? What kind of buyers are looking for houses in that neighborhood? These are all market trend factors to study before you buy.
3. House Features
Also, pay close attention to the house’s features and what will make it most desirable on the resale market. You may be able to alter some things during the renovation process (such as turning an extra bedroom into a home office or gym), but understand what buyers in that area are looking for. This will help you decide if a property is worth buying as a fix and flip, as well as to determine what your renovation costs/process may need to be. You may get a good deal on a 2-bedroom, 1-bath starter home. However, all the houses around it have 4+ bedrooms. You may find that property harder to sell in that particular neighborhood, and of course the size and features need to be factored in when calculating a projected selling price.
4. Cost to Purchase
Of course, the first thing you will look at is how much the property will cost you to buy. Is it within your budget and does it meet your checklist of desirable features?
5. Cost to Renovate
Next, you will need to calculate how much time it will take and how much money it will cost for you to complete the renovations. We always recommend being extra conservative here because things rarely go exactly according to plan. You may end up spending more or it could take more time than expected to get all the necessary work done. Estimate on the high end of time and budget to protect yourself from unforeseen complications.
6. Resale Price
Last but not least, you want to establish a resale price range. Again, it’s smart to be somewhat conservative here and anticipate that the house will sell toward the lower end of your price range. Study the market and look at current sales. Don’t just trust that Zillow’s estimates are accurate. Look at hard data to see if your house is likely to sell (including how long it might take to sell) and how much it might bring on the open market.
7. Target ROI
You should always go into every fix and flip investment with a target ROI (return on investment) in mind. If your goal is to net $30,000 at the end of a deal, then the numbers better add up before you commit to buying the investment property. Figure out how much the house will cost you to purchase and add that to the high end of your renovation estimate for that specific property. Subtract that total from the low end of your resale price range. If those numbers add up to meet your target ROI (or higher), then it is likely a good investment. If not, then you may want to keep searching elsewhere. Never try to force an unsuitable property into an investment plan it can’t live up to!
Property analytics are a crucial part of the fix and flip investment process. If you are flipping houses, you have to crunch the numbers and analyze market trends to avoid bad investments. PropertyLark offers cutting-edge proprietary analytics software and thorough market data on every house we represent. We provide this information to our property buyers, so they can make more informed investment decisions. If you would like to join the PropertyLark home buying network, fill out the contact form and brief investor questionnaire on the buyer page of our website. Let us help you make the most of your real estate investments.