Today, the residential real estate market continues steadily appreciating in value in most metropolitan markets. In fact, the low housing inventory has many buyers seeking out any reasonable deal. Now is the perfect time to learn how to rehab or flip a house.
One of the first things to understand about how to rehab or flip a house is you are not a retail buyer. It’s the retail buyer having lots of trouble finding an attractive and affordable home in this tight market. As a rehabber, that shouts OPPORTUNITY to you.
How to Rehab or Flip a House is About Buying at the Right Price
You’re in the market for distressed properties. Run down properties, outdated properties, neglected properties, damaged properties. Exactly the properties that retail buyers avoid. These are your profitable properties.
It all begins when you earn your profit with the right purchase price. First, find a rundown and neglected property in the right neighborhood. Don't pay more than 70% of the after repair value (ARV). Let's assume you're going to need to spend $30,000 on the rehab. And the house will retail for $150,000 after you rehab. That means your purchase cost shouldn't be more than $75,000. Here's the math equation.
($150,000 ARV X 0.70) - $30,000 rehab = $75,000 purchase price.
Your profit will be $45,000 before closing costs (closing costs are a subject for another article). Rehab six of these a year and you’re turning a $270,000 profit.
Some savvy investors use 65% of the ARV for even higher profits.
Another critical aspect of how to rehab or flip a house is about buying in the right neighborhood.
How to Rehab or Flip a House is About the Neighborhood
Because you want to maximize your profit, the right neighborhood for rehabbing and flipping is upper middle income homes. These are neighborhoods for second or third time buyers. Places where more prosperous buyers are buying up.
Top income neighborhoods aren’t attractive because these people want to customize their own homes. They aren't going to be very receptive to remodeling choices you’ve already made. Neighborhoods for first time buyers aren't a good choice either because these buyers are too price sensitive.
How to rehab and flip a house successfully doesn't have a specific price range because home prices vary greatly across the country. The neighborhood is the consistent factor from city to city and town to town. You want upper middle income neighborhoods. What you're typically looking for are neighborhoods where at least one parent has a college degree and works as a professional. The household income should exceed $75,000 per year. Most of these are in the suburbs, away from inner city crime and poverty. These people enjoy more luxuries than most but remain on a budget. The upper middle class often have two or more cars along with a boat, motorhome, or other spendy recreational vehicle. These people are also able to take annual destination vacations.
How to Rehab or Flip a House Becomes Most Profitable When You Make Mom Happy
What you want to strongly consider when deciding how to rehab or flip a house is what the mother in the family finds important. Sure, dad wants a workshop in the garage. However, the most important renovations are made to the kitchen, bathrooms, and master bedroom. Those are the domains of the woman of the home. When you make her happy, you'll get your full asking price.
As you consider the remodel, here are some of the upper middle class features many moms want:
- A mud room on a back or side entrance for the family’s muddy tennis shoes and sports equipment.
- A laundry room is an essential element that is often more important than an extra bedroom. Placing this next to the mud room is even better.
- There is never enough storage for a growing family.
- In the kitchen, women always want the very best. From the latest appliances, faucets and sinks, countertops, floors and cabinetry yet functional for the entire family to enjoy.
- A master spa bath will seal the deal.
Highly experienced rehabbers often pick a niche. For some, it’s houses with a mold problem. Others specialize in foundation repairs or fire damage. These can be great niches that few other rehabbers venture into – for good reason. These can be highly profitable when you have the expertise to pull them off. Or you could lose your shirt. For those just learning how to rehab or flip a house, it’s best to stick with the proven formula of buying at the right price, in the right neighborhood, and rehabbing to make mom happy.
Real estate investing is all about finding creative solutions that work for you and others.
By Wendy Patton
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For more than 30 years, I've used the Sandwich Lease Option System to earn myself and my students millions of dollars. From my experience, I know there is plenty of room and opportunity in the real estate investment market for everyone wanting to participate to find profitable deals. It's because of that fact and my personal success that I share the Sandwich Lease Option System with others.
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