Not every house available on the market is a good candidate for investment as a “fix-and-flip”. It’s important to bear in mind that there are numerous factors that need to be weighed when you decide to purchase a property for this purpose. In my years of real estate investing, I’ve identified the following five characteristics that elevate certain properties over others when you’re looking for a fix-and-flip project house.
- The house in question should be in a desirable area. This is the one thing you absolutely can’t change about the property! The property should be in an area where demand for housing outpaces supply in order to ensure that you’ll quickly get offers when the house is listed for sale. If possible, also try to pick a property that isn’t on a busy road, next to industrial or commercial properties., etc., which can make the individual property less desirable even if the neighborhood itself is in demand.
- The house should be totally vacant. If the house is vacant, there is no need to wait for anyone to relocate before you can get to work and you can reduce the overall time you have ownership of it, and therefore keep expenses like insurance and utilities to a minimum. If the house has any residents, even ones you might consider “squatters”, this can lead to great difficulty getting the ball rolling even after you’ve purchased the property.
- The house should need significant repairs or upgrades. Essentially, this is the main way an investor makes money on a fix-and-flip; by finding a house that sells for below the average market value of comparable homes in the area, then performing repairs/upgrades that significantly boost the home’s value and selling at a profit.
- The spread between the purchase price of the house and your anticipated ARV (After Repair Value) needs to be significant enough to ensure that you’ll be able to sell at a profit even after factoring the costs of repairs, insurance, and other costs related to owning the home while you work on it.
- The price of the house has to be right. You don’t make money by selling the house; you make it by buying the house at the right price. Go in with a solid plan so you can purchase the house at the right price, perform the best value-add renovations within your budget, and sell the house quickly at a profit.
By keeping the above factors in mind when you are searching for a house to fix-and-flip you’ll greatly increase the chances of making a profit while minimizing your risk. It’s also important to have a very strong grasp of what your renovation costs, etc., will be before you start on any project so that you don’t wind up putting yourself in the red.