How to choose your market for house flipping?

Question

Successful house flippers:  How do you choose your market?  I am looking for 3/2 SF's, but where?

What criteria do you use to choose one town over another?  One neighborhood over another?

Chad U. · Answer

@Rich Merlino @Valerie Hiscoe

Valerie is providing an excellent overview of what can happen when you try and flip a property from a distance.  There are many gurus out there (particularly in Canada) who preach how easy it is to flip a US property from a distance.  Nothing can be further from the truth.  J Scott, likely one of the best known and successful flippers here on BP, can attest to that when he and another very successful flipper tried to take their business to Milwaukee, I believe.  They had numerous difficulties which he's written about.

No one will look after your money/investment as much as you do.  The best thing one can do is to partner with someone local to the area with experience.  If they have a vested interest in the project, then it gives them more incentive to ensure its success.  This to me is far more important than choosing the best market to invest in.

Valerie Hiscoe · Answer

It's a straightforward question with a complicated answer.

In the area I live, a 40yr old house in the suburbs is $1m. It's not a market I can afford so when I was looking for a market to invest in, I went to Phoenix. (I belonged to a real estate club whose biggest investors were having a huge amount of success there).  I bought through the realtor I was referred to who then referred me to a property management company with an in-house contractor/construction team. I bought for $70k and planned to put in $35-40k.  The ARV (after repaired value) was estimated at $135 by the realtor and was reiterated by the lender's appraiser when I was borrowing the money for repairs (a minimum $50k loan).  Well, the $50,000 is now long gone and the work still isn't totally complete. I've fired three property management companies, I've had to personally go there to start two evictions myself, and I finally ended up going there for a month to redo half of the renovations that I'd already paid to have done because when I tried to sell it, the suggested list price flabbergasted me at $90k. It would have been ideal for someone to buy and fix and flip because the big stuff had mostly been done and what was left was mostly cosmetic. Since being there, I've been able to increase the rents 50% and now that it's stabilized, I'll apply to refinance (there's a fair amount of difference between what a property is appraised for and at what price it will sell - who knew?). I bought it two years ago and it's only since overseeing the rehab redo and rental that I've received a penny. (I somehow got talked into allowing the draws on the loan to be sent to the pm/contractor - they poo-poohed my concerns and said it was standard practise so I had no control over the expenses.  They were condescending and I was intimidated.) But I've been making payments to the lender all along. It hasn't been fun.

The reason I'm telling you this whole sob story is because you can look for and find a city with all the right economic indicators - but even so, you've got to not only know the neighborhood (appraisals are made with a several miles radius), but especially in a flip situation, you've got to know your team, and for me now, I'd have to be there.  I'll definitely be moving 'somewhere' for my next one. The local economy will certainly be a driving factor but it won't be the only one. I suggest you keep reading everything you can to learn the indicators to look for and then ask for websites etc that will give you the info you need. In Canada, CMHC keeps a lot of stats but I'd have to go back to my books for info on the US.  I'll be looking soon enough. (I'm dual citizen so I've got WAY too many choices.)

Paul Ferraro · Answer

Rich,

There's nothing better than your own back yard. I understand that Worcester is a god place with a wide range of prices for property. Maybe start there. Also drive around and look for those run down properties,bank own stuff too.

Hope this helps,

Paul F

How to choose your market for house flipping?

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