Whether you are looking for a “flip” home or buying a home with sweat equity, it is important to understand the process to make a great investment. A “flip” property is an investment property purchased under market value, renovated and resold for a profit. The concept is simple, but there is so much more that goes into this type of investment. Knowledge is power and we love to share our experiences and knowledge with all of you. Here is what we’ve learned about how to find the right investment for you!
Working with a real estate agent with experience finding a flip property is essential! An experienced real estate agent will understand the market in the area you are looking, have connections to other real estate agents and sellers to find properties before they hit the market, and be able to refer you to contractors that specialize in flip renovations.
Your real estate agent will help you find homes to purchase that are under market value. Flip homes are usually properties that are distressed and need a complete renovation job. We will run a comparative market analysis (a comparison of homes that are the same size and type of home sold in the last 180 days, within 2 miles of the home you’re comparing it to) for homes that are completely renovated so we understand what the top of the market is selling for. This price will be your guide to understand how much room you have for expenses and profit, otherwise known as your return on investment (ROI).
Once you find a potential flip you will want to factor in the cost for your expenses to get it market ready. These expenses can include renovations, staging, marketing and realtor commissions. Every investor has different standards on what ROI should be to be considered a worthwhile opportunity. But let’s say a home sells for $500K fully redone and you purchase the home for $400K you will then want to add on your expenses to your initial investment and subtract the total from $500K to calculate your profit. See below for calculations:
First calculate A) $400K (purchase price of investment) + $50K (estimated expenses) = $450K
Then calculate B) $500K (what comps in the area are selling for) – $450K (total from formula A) = $50K (estimated profit)
These formulas are very easy to compute. The difficult part is to set your budget for your expenses and stick to those figures and then sell the investment for at least the comparable amount used in the formula, if not more. An experienced and full service real estate professional will be able to help you achieve this by pricing the home correctly and preparing an outstanding marketing plan.
If you’re considering purchasing a flip property and have questions on the process, feel free to reach out! We would love to help you invest in this booming real estate market 🙂