Is this house flip worthy? 7 simple tips for 2017
Recently, I’ve been researching possible investment properties for a client whose interested in flipping. If you’ve tried it, you know. There’s an immense sense of pride and satisfaction you and your team feel when buyers appreciate all the sweat equity you’ve put into it. I gotta say its slightly addictive.
House flipping has morphed into a mega industry of national investor seminars, groups and coaches. The success of HGTV has catapulted an even broader market of wanna-be flippers for 2017.
Obviously, to be a success, you’ll need to conduct a heavy dose of both online and in-person research consulting with real estate experts, local investors and qualified contractors. Sometimes you just learn as you go. For instance, we flipped the home above 8 years ago and looking at it now I think, we did good, turned a tidy profit, but what are the bars STILL doing on those windows? See, you can always improve.
Below are 7 simple tips to help you decide if a house is possibly flip worthy:
1. Know the cold, hard cost of renovating.
- Interview various contractors, vendors and trades - gain a clear understanding of their labor rates and be able to assign a ballpark number to your budget should you need to hire them to complete the job.
- Create a spreadsheet with solid numbers for the cost of:
mechanical systems, furnaces, AC, water heaters, roofs, windows, appliances, flooring, tile, lighting, plumbing, fixtures, cabinets, countertops, framing, drywall, painting, new electrical panel, concrete mudjacking, landscaping, etc. (anticipate design-to-build costs for both interior and exterior)
2. Know your buyer demographic.
- This is critical in understanding where to spend and where to save with your renovation costs.
Will your target buyer care you installed a cheaper tile countertop, or will they discount their offer because you chose not to use a solid stone surface? Is your buyer a millennial who will pay extra for energy efficient appliances? Will this floorplan work for buyers who want their kids' bedrooms on the same level?
3. Know your comps.
- Have your REALTOR® pull sold comps. Comb through those listing photos and see what finishes are appropriate for your neighborhood and your budget. Is the new build competition down the street using wood laminate flooring or actual hardwood floors? What feature does this house have that the new build homes don't that you can promote?
- Be realistic about what resale price the market will bear.
4. Check online for all public records.
- Are there any mechanic's liens filed? You could be on the hook for payment.
- Does your regional building department show a permit record indicating the mechanicals’ age, the roof’s age?
- Is this a distressed property sold “as is”. Know the risk involved with a foreclosure, short sale, bank-owned, government-owned property, etc. and the opportunities or limitations as an investor.
5. Know your neighborhood.
- How does the school district rank?
- Is it in or near a flood plain? Will your buyer be able to insure it?
- Is it in or near a landslide susceptibility zone?
- Are there any easements? zoning requirements?
- What does the HOA cover? Get a copy of their covenants, building and architectural restrictions.
- Check your local sheriff department’s website for crime rates in the neighborhood. Is it safe or on the decline?
6. Know your bottom-line sales price.
- Include your ideal profit margin to cover not just reno costs, but also your time.
- Don’t forget carrying costs (utilities, insurance) while you’re flipping the house (how long will that take? 1-3 months?)
- Are you paying cash, or are you financing part of this deal?
- Remember to include closing costs, and are you willing to pay some of the seller’s in case they ask for it in their offer?
7. Know your budget BEFORE submitting an offer.
- If the stakes get high, and the property is competitive, know when to walk away. There will always be another.
Educate, educate, educate yourself first. There's a myriad of local community offerings and online courses available to you (in Colorado http://www.renav.com). Consult with experienced flippers so you have a better understanding what business plan might work best for you and your model flip. Ask your local REALTOR®. We'll get you to the right resources. Looking to buy a home in Colorado Springs? I'd love to help. Please contact:
Kim Gaston, Colorado Springs REALTOR®, Front Porch Team Real Estate & Property Styling, member of Colorado Real Estate Advisers LLC, www.frontporchrealestatecolorado.com, firstname.lastname@example.org 719-661-6987
Wishing you much success in 2017!