How to Find the Right Fix and Flip Property
If you’re looking for a house to fix and flip, here are give ideas to help you find the most profitable investment property.
Most of the houses on the market these days are going to millennial buyers. With little free time and fewer DIY skills than previous generations, today’s homebuyers are willing to pay a premium for attractive, move-in ready properties.
This provides an abundance of opportunities for investors to fix and flip homes at a healthy profit. But not all properties are equally well-suited to flipping. Here are the top five ways to choose the best investment property to fix and flip.
1. Remember Rule #1
The golden rule of real estate has always been location, location, location. This is just as true when you are selecting and flipping a house for profit as when choosing one to live in yourself.
Location is inevitably the one thing about a house that no amount of renovation can change. It also directly dictates a wide range of critical factors that potential buyers will look at when making their decision, including:
- Commuting time to major social and business centers
- Neighborhood ratings related to safety, walkability, and desirability
- Local tax rates and school districts
Even the most appealingly flipped home will be hard to resell if it is in an undesirable or struggling area.
The Pandemic Diaspora
In the past, choosing a property for its location often meant focusing on urban areas or their direct suburbs. But in the wake of the coronavirus pandemic, this is no longer the case. Huge swaths of American workers began working remotely during the pandemic.
Nearly half of these workers expect to continue working remotely full-time or part-time even as potential returns to traditional workplaces become possible. More than 20 percent have already taken advantage of this un-tethering from the office to relocate to areas with more access to nature and other quality-of-life amenities.
This means that moving forward, investors can expect a broader range of geographic locations that offer ideal flipping opportunities. It also suggests that investors may need to start placing more weight on walkability scores and other, similar indicators when selecting fixer upper properties to fix and flip than they have in the past.
Deciding which factors to give the most weight is linked directly to the second hot tip every flipper should keep in mind.
2. Learn the Market
There is a lot of math involved in fixing up a house and selling it for profit. Investors have to crunch numbers to determine:
- Whether or not a prospective property is worth the asking price
- How much money it will cost to flip the house
- How much they can realistically resell the renovated property for
- Where that target resale price will place the home in comparison to others in the neighborhood
Making informed investment choices requires flippers to have a clear range for each of these numbers. The only way to determine those ranges, however, is to learn the market inside and out.
Importantly, this isn’t a task investors need to tackle alone. In fact, the most efficient and effective way to learn the market is to work with an experienced real estate agent who is already familiar with the area. Such an agent can help investors assess:
- Market health and growth
- Specific hot spots within a larger market
- Average and trending property values
- Buyer profiles and priorities
This can help investors dial in their buying decisions and make the best choices about which renovations to prioritize. As a bonus, developing a strong relationship with a realtor upfront can help streamline the selling process when the flip is complete and the home is ready to go back on the market.
3. Prioritize Properties That Need Mostly Cosmetic Work
Some houses are hard to sell due to features that are difficult or impossible to change. Common examples include:
- A local reputation as a “bad” or “problem” house
- Hard-to-modify floor plans
- Major physical defects such as mold or foundation problems
To the extent that flippers can do anything about these problems, the solutions tend to be costly and time-consuming.
By contrast, several of the top 11 things that make homes hard to sell are much faster, cheaper, and easier to resolve. These include:
- Outdated decor
- Bad smells
- Lack of natural light
Buyers can have a notoriously hard time picturing themselves in a space full of a previous owner’s belongings and style. Similarly, visceral reactions to dim, smelly rooms can make it impossible for the average buyer to see the potential of a home.
Investors with a good eye, however, can more readily recognize properties with “good bones” and strong potential even when they’re masked by mess and poor presentation.
Certainly, well-positioned properties with bigger issues like the need for a new roof or foundation repair can be suitable choices for flipping. But they require large investments of time and money to fix up and resell.
Investors can flip diamonds in the rough for far less. Sometimes it can take as little as:
- A dumpster
- A deep clean
- Fresh paint and carpets
- Touched up curb appeal
These types of flips take less time, call for smaller fix and flip loans, and can offer an excellent return on investment. While they don’t necessarily need to make up the whole of an investor’s portfolio, prioritizing them when they are available can be a smart choice.
4. Choose Between Volume and Value
There are two general strategies for making money via property flipping.
The first is a high-value, low-volume approach. Flippers using this strategy:
- Select homes in hot markets
- Do much of their own work to keep costs down
- Invest in homes they can flip and resell for a much higher amount than they paid
- Tend to flip a small number of houses each year
Low-volume flippers count on big returns from a small number of properties to hit their profitability targets.
The second approach is just the opposite: low-value and high-volume. Flippers using this strategy:
- Select homes that need modest amounts of improvement
- Expect to make less on each resale
- Often hire contractors to get simple work done quickly
- Flip a large number of properties each year
While they make less per property, the high volume of properties they turn over enables them to meet their profitability targets.
Obviously, these strategies are not mutually exclusive. Flippers can buy, renovate, and resell both low-value and high-value properties.
However, selecting and sticking with one strategy or the other can lead to better results in the long run than mixing and matching. It can also make it easier to set and reach annual profit targets consistently.
5. Use Smart Investment Property Financing Strategies
Even investors with great strategies and good eyes for flippable properties can crash and burn if they don’t have the right financing to see the job through. Solid cash flow is critical at every step of the process to:
- Buy the best properties
- Purchase the materials and supplies needed for renovations
- Handle unexpected surprises
- Pay contractors, cleaners, inspectors, and other service providers
- Prep the house for resale and handle sale or closing costs
Few investors can fund this out of pocket. Relying on the income from other flipped properties is also risky. One delayed sale can set off a chain reaction of cash shortages that sets every other project behind, too.
Taking out investment property loans from a reliable lender prevents these and other disasters. It ensures that investors have the cash they need when they need it. This keeps an investor’s portfolio cycling smoothly through properties even when delays and changes to plan occur.
Fix and Flip Loans
Standard mortgages do not tend to be appropriate or feasible choices for investors. First, they often are not available for homes in poor repair at all. When they are accessible, they carry long loan terms that are not suitable to or favorable for buyers who only intend to own the home for a short period of time.
They can also be rife with conditions targeted toward homeowners who will live on the property that unnecessarily increase investors’ costs while flipping.
Loans designed specifically for investors and flippers, by contrast, offer the kinds of flexible and attractive terms that investors need without any extraneous burdens. While these loans can’t help investors select the right properties, they can give them the tools they need to succeed with the homes they’ve chosen.
Finance Your Flipping
Take your investment property and flipping strategies to the next level with the right fix and flip financing options today. Or browse our blog for more great industry insights.