Flipping houses, or the art of purchasing properties at a lower price, renovating them, and then selling them for a profit, is a mainstay in the real estate world.
The strategy attracts investors because of it’s ability to work in all types of markets, including a very competitive housing market.
While it might seem like something more fit for reality TV shows, successful house flipping requires careful consideration and thorough research by real estate investors. Unlike real estate wholesalers, flippers must have the knowledge and expertise to make successful renovations and increase the property’s value, including contracting expertise and knowledge of local and state laws regarding properties.
The first and most crucial step in this process is finding the right properties to flip. This is a foundation of “house flipping 101,” if you will.
In this article, we’re going to dive into the key strategies for identifying properties with the potential for a successful flip.
Decide on Your Criteria
Before you start scouring the market for potential properties, it’s important to define your investment criteria. What type of property are you looking for? Are you interested in single-family homes, condominiums, or multi-unit properties? What is your budget for acquiring and renovating the property?
Knowing your criteria will help you narrow down your search and provide house flipping ideas as you determine what’s important to you.
Location is Everything
The adage “location, location, location” holds immense importance in real estate, especially in house flipping. A property’s location and corresponding local market data can significantly influence its potential for profit. Look for properties in neighborhoods that are experiencing growth, have good school districts, access to amenities, and a strong job market. Additionally, consider the overall safety and desirability of the area, as these factors can affect both the selling price and the time the property spends on the market. Real estate brokers may be able to help advise you where to search for the perfect property to flip.
Research Market Trends
Staying updated on current real estate market trends is essential for finding the right properties to flip. Study the local market’s supply and demand, price trends, and average time properties spend on the market. This information will give you insights into whether a particular market is favorable for flipping houses and help you make more accurate predictions about potential profits.
Find Distressed Properties
Distressed properties, which include foreclosures, short sales, and properties in need of somewhat significant repairs, offer lucrative opportunities for house flippers. These properties are often sold at an affordable price due to their condition or the urgency of the sale.
One popular way to find distressed properties is known as “driving for dollars.” Driving for dollars is a real estate investment strategy often used by house flippers that involves physically driving around neighborhoods on the lookout for properties that appear to be distressed or in need of repair (think boarded up windows, overgrown lawns, etc.). These properties likely have motivated sellers, or owners who would sell their properties at low market value simply to get rid of them. Driving for dollars is an effective way to find off market properties and identify a motivated seller who can help an investor secure the right kind of home to flip.
Some investors also try “virtual” driving for dollars, which involves digital driving routes: browsing a “driving for dollars” app, listing site, social media platform, or other online platform for distressed properties and motivated sellers. Flippers can also investigate setting up a direct mail campaign as a real estate investing strategy to identify property candidates.
The Importance of Home Inspections
That said, use caution as you move forward. It’s vital to assess the extent of repairs needed and factor in renovation costs before making a final decision. A thorough inspection is crucial to avoid unexpected expenses that might take away from profit.
Additionally, be sure to build in a home inspection contingency into any deal you make for a distressed property. A home inspection contingency is a clause that states the buyer’s right to negotiate repairs, pricing, or back out of the transaction altogether if a home inspection report reveals significant problems with the home beyond what the seller discloses. This could include issues with major appliances, the furnace and air conditioner, electrical system, damaged or missing siding, etc. Inspection contingency rules vary, but the value the inspection contingency adds to the transaction for buyers cannot be understated. Preserve your best interests and earnest money by writing in a home inspection contingency into your distressed property deal to both give yourself peace of mind and protect your investment.
Network with Real Estate Professionals
Building a strong network within the real estate industry can provide you with valuable insights and access to potential properties. A real estate agent, broker, property manager, and even another flipper can offer information about distressed properties or off-market opportunities. These professionals can help you navigate the market and discover hidden gems that might not be publicly listed, in addition to facilitating your real estate transaction. Realtors often have a lot of experience, knowledgable about housing transactions, home sale policies, and even fair housing laws. The National Association of Realtors (NAR) is a good place to start.
Scour Online Listings
Online platforms and listing websites have become a great place to look for house flippers. Websites like Zillow, Realtor.com, and Redfin provide detailed real estate listings for potential buyers, including photos, property descriptions, and asking prices. Utilize filters and search criteria to find properties that fit your budget and provide you with the right opportunities. Remember that these listings are just a starting point. You need to conduct additional research and do your due diligence before making an offer. A realistic selling price can always be negotiated.
Go to Auctions
Property auctions, both online and offline, are often goldmines for house flippers. Auctions typically feature distressed properties or homes that a property owner needs to sell quickly, which can be a great opportunity for prospective buyers. Participating in auctions requires preparation, though, so ensure you understand the auction process, terms, and financing options beforehand.
A pro tip is to attend a couple auctions as an observer before actively participating. This familiarization will help you immensely down the line.
Consider Off Market Listings or Opportunities
Not all potential flips are listed on public platforms. Some property owners might be willing to sell directly, without a real estate agent or brokerage listing on the Multiple Listing Service (MLS), if the right offer comes along.
An off-market listing that is marketed privately rather than on the MLS is sometimes called a private listing or a pocket listing. Pocket listings can be difficult to find as they are exclusive listings but highly lucrative since there might be less competition.
Direct mail, postcards, or local newspapers are some examples of creative ways to get the attention of homeowners considering selling who simply aren’t sure yet. You may be the first (and only) person in line to buy their house, presenting them with a way to avoid the hassle of having to list.
While this approach might require more effort, especially since real estate agents and/or other real estate professionals might not be involved to guide the process, it can lead to exclusive real estate opportunities with less competition and potentially better deals.
Conclusion
The house flipping process can be quite profitable when approached strategically. And finding the right properties to flip is one of the most important parts of the process.
By defining your criteria, researching market trends, seeking distressed properties, networking with professionals, maximizing online resources, attending auctions, and considering off-market opportunities, you increase your chances of identifying properties with the potential for successful flips.
