House flipping may sound like a fun, easy way to make fast money on a real estate investment, but flipping a house isn’t as simple as it seems on TV. Buying, remodeling, and selling a home in a short time (and turning a profit in the process) is a big undertaking even for the most savvy of home flippers.
Luckily, you don’t need to tackle this task alone.
Add a top-notch real estate agent who’s experienced in flipping houses to your team and get a knowledgeable asset that can save you time, money, and headaches along the way.
There are 4 major ways that a partnership with an agent who has house-flipping experience will benefit you in all three stages of the process: the initial buy, the remodel and the sale.
Agents help you to:
- Understand your local housing market and the current market conditions.
- Scout properties and find the right buyers.
- Determine the right remodeling projects and find good contractors.
- Time your sale and set the right list price
1. Is your housing market right for flipping homes?
An experienced, local agent can help you decide if flipping is a smart investment to make in your neck of the woods.
Contrary to popular belief, flipping isn’t a profitable prospect in every city. So, you won’t make a sizable return on your investment as a house flipper if real estate market conditions in your area aren’t favorable.
And even if your area is ripe for house flipping now, that doesn’t mean it’ll stay that way. If you look at the two maps below you can see how drastically the market conditions for flipping homes can change quarter to quarter, year over year, and city by city.
Real estate market conditions are always shifting—thanks to factors like rising mortgage rates, fluctuating home sale prices, and varying inventory rates (a.k.a. months of supply of homes for sale). And while general national statistics are readily available online, it takes the expertise of an active agent to understand the specifics of your local real estate market.
With so much money on the line, don’t dive in headfirst before consulting a professional.
If you’re lucky enough to flip homes in a seller’s market (where buyers are snapping up properties within days), and home values are steadily increasing in your area, you’ve got a good shot at success.
Especially if you find the right real estate agent to guide you through the process.
2. An agent helps find the right as-is house to buy for your budget
House flipping is a risky, speculative investment that offers no guarantees. You’re essentially gambling that a run-down, outdated house will sell for a projected higher value if you spend an estimated amount of money on repairs and upgrades.
So, when you’re doing your financial planning, you need to guesstimate low on the potential resale value of the home and over-budget to cover unexpected expenses that typically come up during the remodel.
If you get any those numbers wrong, you’re lucky if you break even on the sale.
But rookie house flippers often make an even bigger mistake: paying too much for the house they plan on flipping.
According to Bryan Lebo, who has over ten years of flipping experience and ranks in the top 1% out of 9,196 sellers’ agents in Las Vegas,
“The most important part of flipping is the acquisition. The money is made in the buy. If you get the buy-in wrong, then you’re really in a tight spot.”
The more you pay for the as-is property, the less cash you’ll have for the remodel. And as your expenses on the house purchase and remodel rise, your margins for turning a profit shrink.
Finding the right house to flip is the most important decision you’ll make throughout the entire process.
Active agents with their finger on the pulse of the current market have the up-to-date information you need to help you make the right bargain buy—that allows for plenty of breathing room in your budget.
Negotiating the homeowner down to their bottom dollar on your as-is home purchase isn’t the only asset your experienced agent brings to the table. Your agent is also your best resource for assessing whether or not the remodel costs will fit your budget.
The condition of the house is a major factor in deciding which as-is home to purchase. It needs to be rundown enough that the sellers are willing to accept a bargain—and in good enough shape that you can afford to fix it.
Along with the condition of the as-is homes your considering for your flip, your agent also assesses the neighborhoods. Is the home in an up-and-coming neighborhood, or are home values in the area on the decline?
These are questions an agent will research before presenting you with potential as-is homes to purchase.
Finally, an agent is an excellent financial resource to help you figure out exactly how much you can afford to spend on your fixer-upper. There are a lot of numbers you need to juggle when you’re doing the financial planning.
Beyond the major numbers (the home purchase price, the remodel budget and your margins for potential profit), you need to factor in other hidden costs like taxes (property and capital gains), utilities for the months you own the home, building permits and other fees, such as HOA dues.
Once you’ve picked and purchased your fixer-upper, the agent’s role shifts from financial advisor to interior design and construction consultant.
3. An agent gives market-driven tips on spending remodeling dollars
House flipping is a high cost business. Just upgrading or remodeling the kitchen alone can cost anywhere from $35,000 to $65,000—if you make renovation decisions as if you’re going to live in the house yourself.
“When you’re flipping, it’s always about dollars and cents,” Lebo says. “Every decision you make as a flipper is dictated by, ‘Is this going to make me money? Or am I just throwing money out the window that’s not going to yield me a return on that investment?’”
The key to making smart remodeling decisions is realizing that creating the right “look” doesn’t require buying the most expensive materials.
If you’re upgrading a master bath for yourself, you might want to spend the big bucks on a brand-name faucet. But when you’re flipping, a less-expensive off-brand will do just as well—and those dollars you save add up.
Savvy house flippers know how to get the most bang out of their remodel bucks— and an experienced agent can share those money-saving tips with you.
For example, instead of paying retail for carpet or laminate at a home improvement store, your flip-experienced agent will have insider info on where to find discount flooring outlets.
Agents who represent multiple house flippers, or flip themselves, have also been known to strike bulk rate deals that you can get in on.
Some have arrangements directly with manufacturers to buy out last year’s inventory at a discount, or with contractors sitting on leftover materials from a completed housing development.
“It can be vital to work with the right agent. Experience is crucial,” Lebo advises.
“An agent can help you find contractors that are going to be able to work on razor-thin margins and overstock on products with better prices.
“Some agents may have sold a lot of homes, but unless they’ve flipped homes and been in on the construction side of it, they don’t have an acumen as far as the remodeling.”
Once the home is completely refurbished and ready to list, your agent changes gears again and becomes a master at marketing and sales to get your flip sold fast and for the most amount of money.
4. An agent offers experts list price and when-to-sell advice
Every house has an estimated value on paper, but when it comes time to sell, it’s only worth what a buyer is willing to pay and the bank is willing to finance.
A flip-experienced agent keeps an eye on market trends during the remodeling process to help their seller set the right list price when the time comes. Along with pulling the most recent comps and assessing the value added with the remodel, you agent will factor in your expenses to ensure that you recoup your investment and make a healthy profit, too.
However, sometimes your agent might advise you to hang on to the property for a few months, or maybe even rent it out for a year or so, to give you a better shot at a bigger profit—or to keep you from losing money on the deal.
Remember those conditions that keep the real estate market in constant flux? Well those can change even within the few weeks or months it takes you to complete the remodel.
And if home values take a nosedive before you can sell your flip, it might be better to wait to sell until market conditions improve.
For example, home values—and house flip profits—have been rising pretty steadily since the housing market crash in 2008-2009. But in mid-2018, house flipping returns in the U.S. dropped to an almost four-year low.
When dips like this happen, home flippers without an experienced agent advising them to wait before listing, wind up selling at a reduced price—which can shrink or completely wipe out any return on their investment.
If you’ve budgeted wisely from the get go—and didn’t spend to much on the house purchase or the remodel—you should have enough working capital left to ride out any market fluctuations.
First-timers often underestimate the amount of time and money it takes to flip a house—and how much risk is involved in the venture. But if you partner with the right, flip-experienced agent, you’ll be in the best position to ensure that your first flip is a soaring success.