Janice Boles, Pitch Perfect™ Course Graduate
You think you’re ready to buy that house that’s priced well below market value within your neighborhood, make a few cosmetic repairs, and resell for profit, all within 12 months? There are many of us who love to watch all the home improvement channels, showcasing the simplicities of choosing the perfect accent piece to compliment that beautifully painted living room, or deciding which wall to knock down, to open the space within the kitchen, that will add instant value. How about taking a nice fieldtrip to the local flooring store, eyeing many variations of hardwood, like a kid in a candy store.
The real estate market is continuously improving. Homes are steadily appreciating in value, while providing wonderful opportunities to investors interested in pursuing the flipping business. Flips are definitely on the rise, being at their highest since 2007. According to Realty Trac, (www.realtytrac.com), the share of homes flipped in 2015, increased from the previous year, in 83 of 110 U.S. metropolitan areas. Realty Trac also indicated the areas with the highest average gross ROI (Return on Investment), included Jacksonville, Florida; Baltimore, Maryland; Memphis, Tennessee; and St. Louis, Missouri. Areas with the highest gross profit in dollars were Seattle, Washington; Los Angeles, California; and Washington, DC. A ROI is a percentage with a formula = (Net Profit/ Cost of Investment) x 100.
Here are five strategies that should be considered when deciding to pursue flipping. In my opinion, all successful real estate flippers should carefully plan and plot within these five areas, lessoning unnecessary heartache and lost profits.
1. Team: Having key players such as a real estate attorney, accountant, general contractor, and real estate agent on board, is essential for a positive outcome. Of course, if you are handy, then incorporate those talents into the project, which will only increase your bottom line profit.
2. Financing: To purchase a property, make repairs, cover the monthly maintenance expenses such as utilities, taxes, insurance, etc. can be costly until the property is sold. Some investors fund their projects solely with their capital, while others seek to use what I call OPF (Other People Funds), obtained either with bank financing, private money lenders, or hard money lenders. Decide which option is best for your circumstance.
3. Location: Location, location, location, could mean even higher profits. When considering your target market, consider the school zones, their rating, proximity to shopping, restaurants, public transit, and hospitals.
4. Repair & Profit: Identifying a profitable flip is crucial, so of course buying low with the notion to sell at the highest profit is a win. Consider purchasing at 70 to 80 percent of market value. Calculating what the property will be sold for after the renovations, also known as the ARV (After Repair Value), usually dictates the outcome of the sell. Be sure to brief yourself on the market area and the upgrades of the homes.
5. Timing- Ninety days is the general timeframe investors strive for, to purchase, renovate, and sell a flip. Within previous years, it was even greater for an investor to complete the transaction under 90 days. Now with the implementation of the Conventional 90 Day Deed Restriction, and the FHA 90 Day Flip Restriction in place since June of 2015, unless there is a cash buyer, investors must wait 90 days plus another 30 to 45 days to close. Seeking to list the property for sale once completely renovated, while paying close attention to the area comps to fairly price for a quick sale, all preferably within 120 days is key.
Flipping real estate, when done correctly, can effectively build wealth. Having a good understanding of a specific market, buying cheap, renovating, and selling can generate tens of thousands in profit, all within weeks or months, and can be repeated over and over!
__
Janice Boles is a licensed Virginia Realtor and managing member of B. Premier Ventures LLC; a residential land development and consulting company. For more information on Janice, please visit www.bpremierventures.com.