As you’d expect, finding a house to flip is not quite as easy as it looks on TV. There are a variety of factors to consider in your assessment that can ultimately make or break your deal. Take the time to educate yourself on how to conduct a fix and flip property evaluation and hone your analysis skills to ensure a profit on your first, or next, flip. Below are a series of tips to help you evaluate a potential flip property and minimize the risk of post-purchase surprises. Learn important criteria before starting your fix and flip property search!
Nothing will impact your deal more than where your property is located. Some factors to take into account include:
Nearness to a school, library, park, or other family-friendly sites (walkability)
Proximity to detractors like airports, main streets, or highways (noise)
Quality of schools
Urban, rural or suburban neighborhoods
When picking a flip-worthy house, the ease of sale matters. You want a house in a desirable neighborhood at a median price range to attract the most buyers and complete the quickest sale possible. Partner with a local realtor or appraiser to estimate your ARV (After Repair Value) calculation.
This is an instance when “fitting in with the crowd” is key. Conformity is desirable when it comes to real estate investment. Your goal is to fall in line with the average. This goes for the size of the house, the lot the house sits on, the floor plan, finishes, and other features or qualities. Don’t go overboard and make your property more expensive than the target buyer can afford!
Tour the neighborhood and look at available homes to determine the common types and styles of improvements, finishes and details found in similar properties. Base your remodel evaluation and estimate on the standout features and then focus on a few key details that will make your house shine without over-improving.
In addition, always keep your renovation budget in mind. You’re running a business and the bottom line is of the utmost importance. High return items that you can consider putting rehab budget toward are:
Curbside details that evoke a “wow” from potential buyers.
Simple, neat landscaping such as mulch and small bushes
A pop of color, like brick red, on the front door
A new mailbox or repainted post
Kitchen and bathroom upgrades go a long way.
Backsplashes add a polished look and feel
New appliances offer a fresh appeal
Neutral paint colors and flooring make spaces appear larger
On the flip side (see what I did there?!), you need to not only identify a viable property but also know when to walk away. If you suspect that a home has structural damage, tread carefully and bring in experts to help you validate the opportunity. Other factors to consider are if the home is: the largest in the neighborhood, one of many run-down properties on the street, on a busy street, in a low demand area, an old structure requiring extreme code updates.
Even trained professionals can struggle to accurately eyeball renovation tasks and assign accurate cost estimates. Back your intuition and lower your risk with evaluation tools, like Fixters Software, that pull in average materials and labor to give you accurate estimates based on current market prices. Use these numbers to build your renovation budget and remember to add about a 10% contingency for unexpected repairs. Better safe than sorry!
As for your rehab timeline, a safe consideration for a buy/flip/sell is approximately six months. This timeframe impacts your holding costs (monthly fees that you will be paying while you are rehabbing, including insurance, utilities and if applicable, HOA fees) and costs of funds (origination fee and interest paid). Here’s an example calculation.
Consider a 15% or higher net profit to be a successful flip.
With these criteria, you are well on your way to evaluating a property and picking a great flip — not a big flop. Be patient and seek good advice from others who can share their experience.