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Need To Know Risk In Flipping A Home
The Top 10 Risk Factors In Flipping Houses (And What To Do About Them)
POST WRITTEN BY
Roger has been an investor since 2002, has flipped hundreds of homes and now teaches others how to make money in real estate.
Unlike home builders who have a fairly controlled process from the ground up, "flippers" don’t always know what problems are lurking behind walls or in the crawl spaces of older homes. Years of experience and hundreds of properties have taught me where the risks are in the house flipping business and how to mitigate them. Below are the top 10 risk factors and considerations to help you protect your investment.
1. Market trends: Which way is the housing market moving? Are we booming? Balanced? Heading for a crash? Check in with national sources and your local real estate agent at least monthly for updates on the market. Specifically, you want to know year-over-year trends and the current average days on market in your area.
2. Demographic shifts: Is your market area growing, stable or declining? This will tell you how aggressive you will need to be in pricing. There are multiple online sources for this information, the best being Census.gov.
3. Interest rates: This is something to be monitored, especially in 2018 as rates are expected to rise. This will put some homes out of reach for some buyers.
4. Time of year: Homes are sold throughout the year, but there is a discernible pattern. Sales typically hit a low in late January and February and rise to a peak in July. Know where your projects will hit the market. If you will finish a rehab and list the house in January, your days on market may be a bit longer than July and you may have to be more aggressive on price.
5. Valuation: This is most critical piece in evaluating a potential deal: What will the selling price be? Known as the “after repair value” or ARV, a good real estate agent will be able to do a comparative market analysis based on your rehab plans and provide your selling price. On house-flipping TV shows, an investor will buy a house, fix it up, then bring in a realtor who tells them how much to sell for. Real investors never do this. We make our original offer to purchase based on what we are almost certain will be our selling price.
You can get a broker’s price opinion from a broker with specific training and qualifications. My experience has been that those who do BPOs normally sit at a desk and write BPOs, and are not in the field much. I prefer the opinion of an agent active in the particular market for our property.
A third source of value is an appraisal. Hire an appraiser who can conduct an ARV appraisal based on your rehab plans. When in doubt, get multiple valuation opinions. If you don’t buy the property at the right price, you have little chance of making money.
I have always had a passion and drive to help others. As a devoted wife and loving mother to two wonderful children, I know how busy life can get. To have the opportunity to become a Realtor has been ....
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