One of the common challenges we see when investors are getting started is they do not know how to price their properties so they will sell quickly – after all that is why they call it a FLIP to make a short term sale and then roll those profits on to the next deal.
1. You need to research the market to find out what the “Fence Posts” are for the community your property is in. There is a lowest priced comparable sale and a highest priced recent comparable sale for all neighborhoods, find out what these numbers are so you can price competitively.
2. Make sure your ARV (after repaired value) is between the median price and the top end price for your area (the higher priced fence post) this way your property will be positioned competitively for the area, and ideally you will have a nicer product than all the other houses for sale at that time for a lot less than your competitors.
3. Realize that someone in your target area could have a house that they own free and clear with 0$ mortgage owing on it, and they can sell the property for drastically less than market value which could in turn make your newly renovated property look VERY expensive by comparison. Most realtors search for properties in a certain price range for their clients and due to this fact your property may look out of place for the area compared to that owner that sold for cheap just to cash out of their house. Be prepared to hold your property for a couple extra months or sell for a lower price when this happens.
4. ALWAYS have a healthy contingency in your budget – this includes for a few areas: holding costs, renovation budget, price discounts. There are a number of things that could go beyond your initial estimates even if you keep your costs under control – the market could shift, someone could sell too cheap as mentioned above, or you might have to drop your price if you aren’t getting any offers. We suggest a 15% contingency in your budget to be prepared to adapt in all of these areas.
5. VERIFY your targeted renovations are actually going to raise the value of the property by the amount you think it will. This will take some detailed research by you or your real estate team, for example adding a new hot water tank and furnace will not add much value to the home (owners expect a house to have heat and water!). Windows are a very attractive feature to upgrade, however it’s very expensive and the value lift will generally not cover the price you pay. Make sure you look at the comparable homes for your ARV and look at what they changed compared to the old listing for your area, this will give you a much more accurate numbers based on WHAT actually raised the value of the home in the area your working in – buyers can value different things in different areas so keep a close eye on making apples-apples comparisons.
The flipping game is a profitable one if you keep your numbers accurate and your project is managed successfully.
To your success,
Respect The Hustle