The report found that flips were 5.9 percent of all home sales during the second quarter of 2019, down from a post-recession high of 7.2 percent in the previous quarter, but up from 5.4 percent a year ago.
The profits generated by a home flip, which is the difference between the median sale price and the median price paid by investors, was typically $62,700 in the second quarter of 2019, down 2 percent from a year ago.
We asked Jen Horner, a real estate agent with Re/Max Masters in Salt Lake City, for tips about how to choose the right property and maximize the profits from a flip.
• Look for distressed properties. One key objective of purchasing then reselling a property is profit, of course. Distressed properties, such as those in foreclosure or those requiring renovation, are at the top of investors’ lists because the largest percentage of profit is realized at the time you buy it; not necessarily when you sell it.
Distressed properties are usually offered at a lower market value than comparable homes in the area. Investors successful at flipping identify the right type of distressed properties to begin with. They make money when they know exactly how to remove the distressed parts of a property and still sell it for a profit.
• Does the purchase price make sense? Be sure that the purchase price plus the costs of repairs and any additional carrying costs will give you a comfortable margin when it’s time to sell. Pull comparable properties to understand what’s selling (and what’s not) in the immediate area, and be sure to make adjustments based on size, location, quality, etc.
Always look at the worst-case scenario to make sure you’re covered. Consider how close to the area’s median home price the property will be once complete. Many flippers target properties that will fall close to the median price in the area — as it is more likely to appeal to a wider audience than a home at the top of the market.
• How long would it take that house to resell once it’s been updated? The number one rule to keep in mind when looking to flip a house is that “time is money.” The longer you own the home, the more expensive it is.
You need to select a property to which you can make fast updates and sell quickly. In addition to the ongoing costs of carrying a home, data shows that most house flippers use borrowed money to buy properties when they are starting out. When you are on a borrowed dime, it is critical that you repay that loan before interest and penalties have a chance to mount.
• What are the selling points of a flipped house to focus on? The ones doing the flipping and the buyer of a flipped house do not want to see any major infrastructure or mechanical issues. Both parties should research this before buying.
After confirming there are no showstopping mechanical or infrastructure issues, location, location, location is key. Kitchen and bathroom remodels have some of the biggest returns. Smart investors and flippers accurately assess the work required to improve and resell a property.
They identify the biggest bang for the buck before committing. Watch for properties to which you can add value.