Here are the house-flipping stats from 2015, courtesy of RealtyTrac:
- The number of house flippers was highest since 2007
- The number of flips per investor was the lowest since 2008
- Almost 180,000 single-family homes and condos were flipped during the year
- Average profit per flip was $55,000, a 10-year high
Flipping is back in a big way, and many small-time and beginning flippers have entered the market. But the stats can be a little a misleading, in that they don’t reveal how many flippers lost money last year. Here are five tips to help you earn good returns on your flips:
- Run the numbers: Set up your spreadsheet and project what you will need to spend to acquire and renovate the property. Price in the cost of taxes, maintenance, utilities and financing. A hard money loan from Specialty Lending Group is convenient and competitive. You’ll need to price out your costs for labor and materials and compare your investment to comp sales in your neighborhood – consider those a firm lid on your selling price. Finally, factor in your tolerance for risk – how much shortfall can you sustain?
- Understand you market: [See attached document from Delta Associates] For example, if you are in the Washington D.C. market, you need to know that homes in the Outer Suburbs are selling faster than those in the Urban Core, although both have experienced a drop in days-on-market in 2016. It took 47 days on average to sell a D.C. home in Q3 2016, a year-over-year four day drop. The point is to know each neighborhood’s potential, demographics, and not-to-exceed price. Be familiar with recent sales and average days on market. Consider renting out the home until prices rise.
- Renovate to buyers’ tastes: Know your buyers. For example, if the neighborhood has good schools, your buyers are young families who will need space for kids. They often demand open floorplans, finished basements and multiple bathrooms (including one only for the parents). Conversely, a retirement community begs for ranch-style houses, easy accessibility and low-maintenance grounds. Choose wisely and renovate according to what your potential buyers will prefer – your personal tastes are secondary.
- Brag: Make a detailed list of all the improvements you’ve made, from a new HVAC system to structural repairs. A new roof is always a big positive. Put together a binder with information about all appliances, including warranties. If you’ve put in “smart home” features such as a remote home controller, display instructions right next to each feature.
- Set a reasonable price: Don’t get too greedy or emotionally invested in all the wonderful improvements you’ve made. Potential buyers only see the end product, not what you started with (although a picture album of the work you’ve done is not a bad idea). Buyers won’t pay you for the stress, long hours and aggravation you had to survive. They have seen the competition and know how much they should spend. Underprice just a little and elicit multiple offers – a bidding frenzy might erupt, to your benefit.
Specialty Lending Group can help you not only with financing your real estate project, but we can also furnish invaluable and hard-won advice to help make your project a success. Contact us today!