Pros And Cons Of Buying A Flip

Pros of buying a flipped home

Flipped homes have a modern design and move-in ready. This means that you don't have to worry about those outdated light fixtures or that old wallpaper. These homes are also vacant allowing you to move in as quickly as you can close the contract. Since the mortgage company helps finance the entire purchase your money goes further quickly. This is compared to buying a run-down home and having to come up with the entire amount of cash for the renovations or to make repairs. Flipped homes are often still cheaper than new homes, they also allow you to move in right away without waiting for months or even a year for a new build to finish construction.

Cons of buying a flipped home

flipped homes may cover up defects

Homes that are flipped are often funded with hard money. Even in today's record-low interest rates, it is common for the rate to be 10% or higher. These loans are used as they can be funded quickly without the normal appraisal and bank record underwriting that usually occurs. However, the quick funding also means that the flippers want to move out of that home as quickly as possible. That means that things are rushed and mistakes may have been missed or covered up. These homes are also completed by investors which means they are looking to get every penny they can out of the sale. This means that you will be paying a premium price for the home compared to the normal listings.

What is the 70% rule in house flipping?

The 70% rule is that the purchase price of the property shouldn't be more than 70% of the ARV (after repair value) minus the repair costs. For instance, if the flipped home will sell for $150,000 and will have a $50,000 remodel. The flipper wouldn't want to pay more than 70% of $100,000 or in other words $70,000. This leaves the flipper with profit and some room if the remodel goes over budget. Not following this rule can end up meaning that the flipper breaks even or even lose money on the project.

How to tell if a house is flipped?

The first giveaway that a home is flipped is look at the property history, flippers generally will try to purchase the house, flip it and list it on the market within 2-3 months. If the home has only been with the owner for a short period of time, and the home was previously purchased much cheaper than it is listed it is very likely a flip. Other indicators to look at are, that the home is vacant but staged, has a nice coat of fresh paint and more.

What should I look for when buying a flip?

When purchasing a flip, it is important to look for defects or outdated systems. Although not sexy, a roof, HVAC, or other systems can cost big money when they eventually wear out.

How much money do I need to flip a house?

To flip a house depends on the scale of the flip however it can often take $50k-$100k of remodeling costs to remodel the house. This would be on top of the purchase price of the home which may require a down payment depending on your lender.

Can you really flip houses with no money?

It is possible to flip a house with no money! To do this will often involve using multiple investors. You can often find a hard money lender who will finance 100% of the purchase price of the home. It is important to remember that this money has a high-interest rate of 10% or higher and often involves paying points to fund the deal. From here you can get a second investor who can fund the remodel who will often like to take half of the profit. This means that you now have all the money that you need to start the flip and can still pocket a portion of the profits for your effort in finding the deal, managing the contractors, and ensuring it sells for top dollar! Some hard money lenders will even loan the entire purchase and remodel for 50% of the profits, they will likely however require some type of portfolio to show that you know what you are doing. To achieve this it might be worth finding some flippers and shadowing them or be an assistant for minimal pay.

How to find a flipped house?

You can find flipped homes by browsing the MLS (multiple listing service) and look for nicely renovated homes that are staged. One example is this flipped home that I completed in the summer of 2021. They also are likely to have a red front door as flippers know that red triggers the mind into making impulse decisions. Just think about your favorite fast food place and it likely has a red sign as well!