In real estate investing, one of the most profitable ways to handle a property is to renovate and flip it. Though this method doesn't offer the long-term income of renting a property out, it does create the potential for large lump sum returns. In order for this to happen, however, an investor needs to start out with the right property. Here are some of the best ways for you to identify homes with profit potential for flipping deals.
Look for Older Homes
Most flips begin with a distressed property in need of significant repair. However, this isn't the only way you can make money by flipping homes. Another great way is to look for older homes that don't really have anything wrong with them, but which need some updating in order to appeal to modern buyers. By finding older homes, you can limit the renovation work you need to do and save yourself the unexpected expenses that are almost always involved with structural rehabilitation.
“As flippers are chasing returns, they’re following them into older neighborhoods with older and smaller homes that provide better deals on the front end,” according to Daren Blomquist, Attom Data Solutions Vice President.
Older homes generally appear on the market for prices much lower than their square footage would normally justify. This is especially true of homes built between about 1910 and 1940, many of which were larger than most homes today. If you live in a city with older neighborhoods where some homes are in need of repairs and upgrades, you may be able to turn a tidy profit by modernizing older homes and then reselling them.
Find Homes That Look Worse Than They Are
One interesting aspect of flipping homes is that a property can look terrible, but actually be in relatively good shape. If you find a distressed property that looks to be in very bad shape, but is structurally sound, you may have found a winner. Be sure, however, that the problems you're looking at are cosmetic only.
In particular, you should be looking for properties that are dirty or poorly taken care of. These homes, though often neglected by previous owners for many years, may not have major structural issues. Floors can be cleaned or replaced, walls can be painted and roof shingles can be replaced, all at relatively low costs.
If a home looks bad to the untrained eye but really just needs some thorough cleaning and renovation, it may be a good candidate for a flip. This is particularly true if it's in a good neighborhood with otherwise mid-range to high property values.
Watch Where Other Investors Are Working
Although the individual house will be the most critical component of a flip, there are neighborhoods that are more conducive to flipping than others. In particular, neighborhoods that may be in the process of gentrifying are an appealing opportunity for real estate investors.
If you see a particular area of your town or city where new businesses are moving in and where other investors seem to be rehabilitating several properties, you should also begin looking at homes in that area. Though it doesn't guarantee a profitable sale, being located in a gentrifying neighborhood can be a strong indicator that a home may be a good candidate for flipping.
To learn what other investors are doing, try attending local real estate flipping events like Flip or Flop seminars that will allow you to connect with other people in your industry.
Find Landlords Trying to Liquidate
One opportunity that doesn't come up often, but that can be valuable when it does, is a situation in which a landlord is looking to liquidate part or all of a large portfolio. These properties will generally be kept up fairly well, but will often need to have some upgrades and updates before they will appeal to a retail buyer.
Though the margin on these homes may not be as high as more run-down properties, they have the advantage of proven tenant appeal, which will often translate into buyer appeal.
Ultimately, identifying the right house for a flip takes time, research, experience and even a bit of good luck. To make your flipping experience more efficient, considering working with a real estate agent to identify properties and neighborhoods, and introduce you to reputable contractors and inspectors in your local area. Reach out and we'll get the conversation started with you and a nearby First Team real estate expert.
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This guest post is written by Anica Oaks, a professional content and copywriter from San Francisco, California. She loves dogs, the ocean, and anything outdoor-related. She was raised in a big family, so she's used to putting things to a vote. Also, cartwheels are her specialty. You can connect with Anica here.