Flipping homes in the U.S. is a popular trend. More than 49,000 homes were flipped in the first quarter of 2019, representing 7.2% of all home sales, according to property data provider ATTOM Data Solutions. And for good reason — the average home flipper is seeing a gross profit of $60,000, or an average return of about 39% compared to the original purchase price.
What’s more, 62% of metro areas report a year-over-year increase in home flipping. Hot markets include Columbus, Ga.; Raleigh, N.C.; and McAllen-Edinburg, Texas.
Selling a house to a flipper is somewhat different from selling to a traditional homebuyer — a flipper may be more excited about the outdated carpet and 1970s appliances (that can easily be swapped out). It takes a different eye to spot a good flip property.
Here are some places to start:
Know the numbers
At its most basic, a flip is about three numbers: the purchase price, the repair work needed and the after-repair value. The repair number may be difficult to estimate, but a good contractor can likely give you some ballpark figures. “With those numbers, anybody — first-time or long-time flipper — can figure out if it’s a deal worth purchasing or not,” said Michael Pinter, a real estate agent with LMPK Realty and a home flipper in Long Island, N.Y.
It’s also helpful to understand — and help your buyer understand — how to estimate the carrying costs of a property, which will include property taxes, utilities and homeowners' insurance.
Focus on the neighborhood
Location is a big draw, but you’ll also want to look at stats like average days on the market in the area. A house flipper invests a lot of money to buy and renovate a property (especially updating rooms like kitchens and bathrooms, which often have the highest returns), and from the day of closing to the day of the next sale, that money is locked up and not available for another project.
“Neighborhoods with shorter ‘days on market’ mean getting money in and out,” said Earl White, co-founder of House Heroes, a house-flipping company in Sunny Isles Beach, Fla. “Not only does a market with a fast turnaround get your money back in play for the next flip, but a quick transaction limits exposure to market shifts and cuts down on monthly payments that lower overall profits.”
Look for a lower price point
Obviously, most buyers are concerned with price. But home flippers are trying to recoup an investment by combining a low purchase price with smart renovations. That means they’re looking for a bargain.
Realtor Adriana Raigosa, who works in Greenville, S.C., recently spotted a listing for a home in downtown Greenville that would need a lot of updates — but was priced like it was in great shape. “They’re really just selling the location,” Raigosa, who works for Joy Real Estate, said. “The house needs a good $30,000 to $40,000 to bring it up to what it could be, but it’s already so expensive. You have to stay away from things like that as a flipper.”
Pass on major structural needs
Unless your first-time flipper is a contractor by trade, they’re probably not looking for a home that needs a new roof, new mechanical systems or suffers from a leaky basement.
“If a house needs major structural work, it’s definitely hard to flip,” said Nadine Adamson, a real estate agent with Brown Harris Stevens in New York, NY. “Cosmetic renovations are fun to do and relatively simple, and a lot of naïve buyers feel bad about ripping out someone else’s ‘dream’ kitchen or bath, even if the style doesn’t jive with their own. A flipper can gain equity by ignoring these emotional pangs.”
Find a house that fits in
Houses that stick out — in a bad way — in a neighborhood aren’t ideal for flipping. “Ugly duckling houses can be a turn-off,” White said. “Normal renovations can’t change the overall structure.”
You could also be in trouble if the home is much more upscale than its neighbors, even if it’s undervalued for its condition. “Prospective buyers may not want to pony up for additional features if they’re out of place,” White said.
Keep your ear to the ground
Knowing what’s happening behind the scenes can give the edge in a seller’s market. “The source of most properties sold to investors include personal situations such as a rushed job relocation, divorce or foreclosure,” said Jen Horner, a Realtor with RE/MAX Masters in Salt Lake City. “Good agents will have a good understanding of the reasoning behind such a sale and work with the buyer appropriately based on that information.”
This kind of sale may be more involved than the typical home sale, but doing it right can reap all kinds of rewards. “A first-time flipper needs hand-holding,” Adamson said. “A smart agent knows that if they give them good advice on their first property flip, that this one sale can turn into many more future deals.”