Flip This House- How to Know If a Property Is Worth the Work
By: Christina Traffanstedt
Flip This House– No matter where you go, there is always going to be plenty of real estate for sale. The hard part is not finding a property to buy, but rather how to evaluate it once you find it and how to tell if it will be a profitable flip. You will never know for sure exactly what it will sell for but with these tips, you can make an educated guess.
Here are a few tips for determining if the properties you find are worth the work…
Know the ARV- the After Repair Value (ARV) is one of the most important numbers you will have to come up with during a flip. Knowing what the property is worth as is, and how much it will be worth when it is all fixed up and updated is what will tell you if it is a good deal and how much you an afford to spend on repairs. To find the ARV you need to comp the area, find houses of similar size on as close to the property as possible that have sold. Compare these houses to the one you are looking at and get the average amount that your property could most likely be sold if fixed properly. Don’t look for the highest sold price, you don’t want to overestimate how much it will really be worth and then not be able to sell it for that. Once you know how much the ARV is, and how much it is worth in its current state, you can estimate how much you will need to spend in repairs and see how much profit you will make of it.
Good Damages vs. Bad Damages- know the extent of the repairs that will need to be done. For a flip to be successful, you want to have some sort of damages or upgrades to do that will increase the value of the property, but there are good damages and bad damages. The good damages are the ones that can easily be fixed with the right contractor like holes in walls, old paint, broken kitchen cabinets or appliances, etc. these are what make it worth less, they’re the reason the property is cheaper to begin with. The bad damages such as foundational issues, termites, roof damage, septic issues, etc. are what you want to look out for. A bad roof could be the difference between killer profit and just breaking even or actually losing money. I’m not saying that a bad roof means there is no deal, if you can still get the property for a low enough price that it will still make a profit after repairs and feel comfortable undertaking a big project, by all means go for it.
Know the Market- we’ve all heard it a million times, when it comes to real estate it’s all about location, location, location. It’s not just an old saying, it’s actually very true. Just because a deal looks good on paper, doesn’t mean its fool proof. Always make sure to do your due diligence; check and double check comps, drive the neighborhood, walking through the property multiple times, get a contractor and/or an inspector out to give you their professional opinion on what all needs to be done, get multiple bids from contractors or handy men to know exactly how much the repairs you need will cost to flip this house, etc. Keep in mind, some areas just don’t have a good market from time, being or knowing someone who is local to the area will come in handy because there’s some information that isn’t always online or laid out in front of you, there are many aspects that you just have to learn as you go.