Fixing and flipping properties is a great strategy for many real estate investors. It is action-packed, provides a quick return on your money, and can be fun if you like fixing things up. Most importantly, it can provide a good return if you are smart about the property you select and the improvements you make.
Unfortunately, there have been some recent reports suggesting returns on fix and flip are getting squeezed.
If fix and flip profits are really declining, it is more important than ever to get smart when it comes to finding, selecting, and improving your fix and flip investments. So, if you aren’t discouraged by the trend of declining profits and still want to get into the fix and flip game, here are some suggestions for finding a good property that will produce decent returns.
How to Find Homes to Fix and Flip
1. Choose the right neighborhood
Start local or with a market you know, especially if you are a beginner. When you live, work, or have connections in a real estate market, you will have the inside track on which areas are on the upswing and which are not.
Starting local also means you will save time and money. You’ll spend less time on travel, and you’ll know where to get the best deals on supplies, etc.
2. Select the right property
If you are new to flipping, a good place to start is with the most liquid products on the market. These tend to be condos (in certain markets) and single-family homes at median price points.
In light of the current affordable housing crisis, a good bet is to focus on modestly priced, clean, bright starter homes. As much as possible, try to find properties that already have popular features and layouts.
Another tip is to search for real estate that requires moderate renovations, as opposed to more extensive ones. It is a lot less costly to update flooring, countertops, and paint than to start tearing down walls.
No matter how experienced a flipper you are, you will always run into surprises. If you don’t keep the unexpected to a minimum, your profits can quickly disappear.
3. Pay attention to market conditions
Even if you stay local and know the neighborhood, it is a good idea to pay attention to the stats on market conditions. Make sure to familiarize yourself with:
- Pricing and condition of comparable properties
- Average number of days properties are on the market
- Property taxes
4. Know your numbers
Speaking of numbers, the better you are at estimating costs and expenses, the better you will be at projecting and realizing your profits. There are many tools and resources to help you estimate costs and expenses, but there is no substitute for experience.
The more properties you flip, the better you will get at making estimates. When starting out, you’ll want to be conservative in your calculations, pad your expenses to cover the unexpected, and stick to your budget.
5. Seek properties and submit offers—aggressively
Even if you don’t think you’ll get the deal, go ahead and submit an offer if you find a property that meets your requirements. If you’ve been in real estate for any amount of time, you know that deals can fall through at any moment, for many different reasons.
For example, the other buyers may not have the money lined up or they may have too many deals in the works. But if you don’t make an offer, you won’t be able to take advantage of opportunities as they arise.
Where to Find Deals
So, what are the best ways for fix and flippers to find properties? Here are a few resources you can, and should, consider when looking for a house to flip:
- Short sale
- Traditional (MLS)
- Seller direct
- Competitor fix and flippers (maybe they have too many going on or the timing of funding doesn’t work, so they may be able to pass it on to you)
- Mom-and-pop owners
I’ve had success targeting mom-and-pop investors who own multiple properties. Sometimes these owners are tired of the work required to manage everything. Other times they have run into financial difficulty and are ready to offload.
Many don’t want the hassle of selling properties one at a time, so they are open to negotiating. I have been able to get great deals on dozens of these properties—as much as 15 percent below market.
To find these types of owners, buy a list of properties with absentee owners (owners with a mailing address different from the property itself) and look for owners who show up more than once on the list. These will be owners of multiple rental properties.
Fix and flip can be a great strategy for real estate investors—but it isn’t always as easy as one might expect. You need to do your homework, know your numbers, and have some patience. When you do, flipping can be a great source of income.
Once you get your formula down and find the deal sources that work for you, make sure you don’t get complacent. Be aware that the best sources for fix and flip properties can change with market conditions, so monitor and adjust as needed.
Let’s talk in the comment section below.