How to Make a Profit Flipping Houses in a Down Market
It’s no secret that the housing market is in a state of flux. Many investors are unsure about whether or not now is a good time to buy a house and flip it. Right now, many amateur and “part time” flippers are closing up shop. Sellers have not yet fully embraced the reality that their home just isn’t worth what it was just a few months ago, and buyers are being a lot more cautious with their spending. The days of capital flowing freely from one hand to the next are over for the time being. However, there are still opportunities to make money in real estate. In this blog post, we will discuss how to make a profit flipping houses in a down market, and why closing up right now just might be the wrong decision. Stay tuned for some tips and tricks that will help you succeed!
Numbers, numbers, numbers
Run your numbers!! In recent years, you could get by with very rough estimates, many “investors” were getting by with buying at around 80%-90% of market value, paying a contractor to flip the house start to finish (probably getting overcharged) and then getting saved during the sale because almost every desirable property was going for over asking price. Unfortunately, these easy days are over for now. The smart house flipper is now buying at around 65% of market value in order to cover themselves and protect their profit. You may be asking, 65%? where can I find those deals? Read on to find out.
Find the deal
There is a large “off market” economy in the housing market, think of it as the market under the market if you will. Housing wholesalers are the people that market directly to homeowners and provide them with a solution to sell their home in a way that doesn’t involve showings, realtor fees or having to wait weeks or even months for the house to close and get paid. house flippers pay these (link www.1stkeyhomebuyers here anchor text “house buying companies”) for their deals that they are able to find and the wholesaler takes a fee for their services and their marketing efforts. This way of buying houses to flip works very well in a thriving market, not so much in a down market. If you want to have to have the best shot at success, you have to find your own deals, and that means going direct to seller. Website presence, direct mail marketing, driving for dollars, etc.
Hire the right construction team
One of the positives from a down market is that there may be more people available to get to work on YOUR job. I can’t tell you how many times in years past I have tried to get a contractor out to my flip only to get told they will be available in six weeks or longer. These days, getting someone out to quote your job isn’t as difficult as it used to be. Secondly, if you’ve hired a general contractor for a flip in the past, consider acting as the general contractor and only hiring out sub-contractors for your job. A standard general contractor markup is 15%-30%. By acting as the contractor and running your own job, you can keep more profit for yourself.
People still need houses
Housing inventory nationwide is at an all time low, and that wont be changing anytime soon, no matter what direction the market is going. Not to mention “nice” housing inventory. A well put together house with modern style will never not be a very sought after and valuable asset. When deciding on design choices, stick to the basics and ensure your contractors are working to a high standard and not cutting corners. Design and materials are even more important now than they were before.
Price it correctly
You may be tempted to price a flip house at the top of the market value to ensure that you get a good price and make a profit. That way of determining an asking price is understandable but in reality, can actually restrict your exposure and result in disappointment. Ask yourself this, if I was a buyer, what would I be looking for? If your anything like most buyers, you would be looking for a good deal. It seems counter intuitive, but in this market, you must undercut your asking price to generate interest. When the buyer is looking for houses, you want them to see yours and be attracted, visual presentation and price are big factors. Once interest is generated with multiple parties, you then have a great chance of getting offers over your asking price, even in this market.
Flipping Houses in a down market is possible and can be done if you are smart about it. Find your own deals, build a good construction team and price your houses to sell. By following these simple steps, you can be successful flipping houses even in a down market.