You’ve just located an ugly house that’s been sitting on the market. Languishing, really. Seemingly waiting for you to discover it. You run a quick bit of math in your head, and it looks like you just found your next deal.
Hold on — not so fast. Maybe there’s a reason it’s been sitting on the market.
Brandon’s right. (Duh.) There are some houses that can’t be purchased at a price low enough to justify them as an investment. Sometimes even a free house isn’t worth the price you pay for it.
Finding a property to flip can be even more difficult than finding a property to rent out. When renting, the tenant knows it isn’t forever, so they don’t have to be as picky. But the retail buyer of your fix and flip is making plans to be there for a long time. They can afford to be more choosy, and you don’t want them to choosy themselves right out your door.
Here are 7 tips for choosing the right house to flip.
How to Analyze a Real Estate Deal
Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.
The 7 Commandments of Choosing a Profitable House to Flip
1. Buy the smallest house in the best neighborhood.
The best neighborhood is going to have the best schools. Parents want to get their children into the best schools they can, so any home that comes on the market in these good neighborhoods automatically has more interest.
I once owned a home in a neighborhood where prices ranged from the high $300s to the mid $500s.
Whenever a home in the $300s came on the market, it was instantly sold, but the homes in the $500s sat for a few weeks before going under contract.
The lower your home is priced, the more people will be able to purchase it.
2. No curb appeal can be a good thing.
Often, retail buyers can’t see past the overgrown bushes and dead grass. Throw in some ugly siding, trees that have never been trimmed, or even weird-colored brick or stone, and you’ve got people driving away before they even get out of the car.
Landscaping isn’t very difficult or costly, but can yield exponential results. I spent about $200 on the plants to take my own yard from overgrown and ugly to beautiful and amazing. It was hours of work, but I was a stay at home mom and had those hours available.
I also bought on sale and used a ton of plants. You don’t have to make the home look like a professional landscaper lives there — you just have to make it look nice.
Mulch is inexpensive and makes an easy border. Throw in a few flowering plants and a couple of large bushes to bring life to an otherwise dead looking yard. Salvia, purple fountain grass, and snapdragons all add vivid color inexpensively — and they’re all drought resistant as well.
Replacing siding or covering up ugly brick or stone can be costly and isn’t the most DIY of projects. Get accurate quotes and factor them into your bid price. A week of replacing the exterior can yield HUGE deposits into your bank account.
3. Do your homework.
Knowing what homes in the area sell for — both after repair and before — will help you recognize a great deal when it comes along.
Not every property being advertised “as-is” or “handy-man special” will be a great deal for you to flip. And don’t assume that since you put $50,000 into a property, it will be worth $50,000 more than you paid for it.
4. Don’t buy unique.
If the listing says the property is unique, that means it’s weird. Or ugly. Or odd. Ditto “one-of-a-kind” and “interesting.”
That’s not to say you can’t take a unique house and make it amazing. But unique homes take a LOT longer to sell if they stay unique after your renovation. If your rehab plans include transforming these homes into more conforming styles, make sure your budget has room.
I once lived by this house that reminded me of Uncle Owen’s house from Star Wars. It was a tan dome that looked like it was constructed out of dirt. Weird doesn’t begin to describe it. Had it been on the market, it would have never sold.
I’ve since moved away from the “Uncle Owen” house, near yet another weird-looking, domed abode. This one was actually for sale recently, and in addition to being enormous (7 bedrooms) it was on a lot that was much larger than your typical lot in the area.
All of that going for it, PLUS the inhabitants were hoarders, and interior pictures were unavailable. It would have taken quite a bit of work to make this property not be unique.
In Episode 147 of the BiggerPockets Podcast, Johnny Youssef tells how he took an odd property and made it profitable for himself. As I listened to his podcast, this weird dome house came to mind. However, I don’t think even Johnny could make this house profitable.
5. Don’t pay retail.
Few things in life are certain. Death. Taxes. Losing money on a flip if you pay retail. OK, that last one might not be true 100 percent of the time. But it is true close to 99 percent of the time.
In my town, there is a flipper/agent who buys homes at their current retail value — because that is just about the only way to purchase a home in our red-hot market — and then significantly increases their value by adding second stories or large additions, then rehabbing the rest of the property so it is top-tier.
On the other hand, I looked at a hoarder house listed for $30,000 less than retail, but needed around $30,000 in work to bring it up to par with the retail properties in the neighborhood. In fact, it was a cookie-cutter subdivision, so it was easy to see exactly what the home would be worth.
I bid on this property, as did about 9 other people. It went for $1,000 over asking, and I don’t even know what the buyers are going to do with it. Once it’s repaired, they’ll be all-in at 100% ARV. It was in such horrible shape it couldn’t have an inspection or appraisal, meaning a loan was out of the question.
The flipper/agent in my hometown can get away with paying retail, but the hoarder house buyer has no real exit options because they paid retail.
6. Don’t forget to check out the neighbors.
Before you make that offer, look next door. What’s going on with the neighbors? A recent poster in the Forums said she didn’t think to walk to the way back of the yard to look at the neighbor’s house and discovered only after she had rehabbed the house and put it back on the market that the neighbor kept bees. Her first buyer was terrified of bees and backed out.
She had a difficult time selling the property because of those bee hives.
Other things that may not matter to you, but might matter a LOT to your buyer: dogs, chickens, trains, or the general dilapidated state of the home next door. Nobody wants to buy a nice house next door to a dump.
Don’t forget to check out the neighbors.
7. Don’t buy on a busy street.
In 1979, Stephen King wrote a book about a family that moves into a house next to a road on which semi-trucks routinely sped. Pet Sematary is based loosely on his own experiences of living in a home near a busy road — his daughter’s cat died on the road, and his son very nearly ran out onto it, too.
The thought of losing a child is horrifying, and parents will actively avoid buying a home on a busy street. Even though King wrote this book in 1979, he put the manuscript aside for four years once he was done, feeling he had gone too far with the concept of a child dying and then being brought back to life (spoiler alert!). It only came to life when he found himself one book short for his contract.
As someone who has lost many nights of sleep to Stephen King’s horror, I find it telling that even he felt the subject was too much.
A home on a busy street — no matter how nice — is going to sit for a very long time on the market. Offers will take longer, and they will be far lower than you want.
Busy street homes are often mis-comped. Inexperienced flippers see an identical house two blocks over and feel it makes a great comparable house. What they don’t realize is that the house two blocks over ISN’T a comparable house. It isn’t identical — it’s two blocks over.
Remember the first rule of real estate. Location, location, location. It’s the one thing you can’t change.
Do you have any tips for choosing the right house to flip?
Leave them below!