HGTV has several shows featuring people raking in big bucks flipping houses. It seems like an easy and fun way to make an extra $20,000+. However, it is definitely not as easy and as flashy as it is portrayed on TV. Veteran home flippers often keep a mental checklist to help steer them towards homes that are primed to gush cash with the right upgrades.
Is the Home in a Neighborhood where Homes Sell Fast?
One of the first clues that a house is “flip-worthy” is that it is in an area where homes sell quickly. In the flipping game time is literally money. The longer your house either isn’t done or is sitting on the market means the longer you have to pay the mortgage and maintenance costs. Fast-moving selling markets generally mean overheads won’t last long.
The House Meets the 70% Rule
For a flip to be worth your time, effort, and money, you should between 10%- 30% return on your investment. To determine your potential return, see if the flip meets the 70% rule. Meaning can the house be bought for 70% of what it will be worth once fixed up, minus any needed repairs, closing costs, and real estate agent fees? For example, if you can buy a house for $100,000 and fix it up for $30,000, you will want to sell it for around $200,000 in order for it to be worth it.
The Price Is Right
To get a ballpark figure for how much you can sell a house for once it is fixed up, one safe rule of thumb is to check the median home price for that market. So in the 33813 area code of Lakeland, the median listing price is $260,000 while the median closing price is $203,000. Which means the price per square foot is about $109. The price obviously varies on the number of rooms, upgrades, neighborhood, and a number of other variables.
The Property has More than One Bedroom
Do not buy a one bedroom house to flip, because most home buyers are looking for at least two bedrooms. Anything smaller will minimize the demand at resale. Another flip worthy must is a functional floor plan. Meaning you should not have to go through a bedroom to get to the kitchen.
The Needed Repairs are Mostly Cosmetic
The physical condition of the home should be fair and correctable without draining your bank account. Repairs that should give you pause include foundation and structural issues. Tackling these two problems can destroy a reno budget with overages and stretch the time from of the flip. The home needs to be in good shape, to begin with, unless you are planning a very large gut and addition, which is unlikely in most flips.
Understand What Scares
Most home buyers touring an open house can deal with a lime-colored wall they need to repaint or one appliance that predates the stone age. What many buyers can’t handle, though, are intimidating and pricey projects like replacing an old furnace, putting on a new roof, electrical upgrades, or plumbing issues. Not only do these issues spook homes buyers, they also could make the home hard to finance with lender money. Last but not least, a home shouldn’t have any crazy characteristics like a railroad in the backyard, a very busy road out front, or other problems that can’t be changed.
The Neighborhood Itself Doesn’t Need Flipping
People don’t just live in a house, they live in the surrounding area too. A potential flip should be in a good neighborhood with access to transportation and amenities like parks. Perhaps the biggest indicator of a flip-worthy home is the quality of the schools since a large segment of buyers are looking for good schools.