The $10,000 question (actually in most cases, this question is worth much more than 10 grand): which house makes a good fix-and-flip candidate? Well there are plenty of attributes to consider when trying to answer this question. The first thing you should do is pre-qualify an entire area or neighborhood. When doing this, there are a number of factors you need to research. However, after you qualify an area (we can call this your "farm"), finding potential fixer-uppers will be much easier.
When qualifying an area, start at the city-level and look at data that is readily available on the Internet. First and foremost, check the quality of the school district within a city you're analyzing. Make sure it ranks above average within your state. Second, check the crime rate for that city. Make sure it ranks below average for your state. If both of these results are satisfactory, it's time to hone in on the neighborhoods within that city.
When qualifying a neighborhood, it's best to choose a neighborhood that isn't "slum cheap" but also isn't "yuppie rich". You want to find a nice medium price range of homes that is both comfortable for a wide market of buyers in your state and has a good level of desirability. The larger your market, the better your chances of selling a property quickly.
Choose cities and neighborhoods that are within a comfortable distance from your home. You will likely make over a dozen round-trips to this property, so unless the profit potential is enormous, try to choose something close enough that will be "worth the drive". The final factor when choosing a neighborhood is to look at the past sales within the last year or two and figure out the answer to this question: what is the average number of days does it take to sell a home in this neighborhood? If the answer is "less than 90 days", that indicates that there is a level of desirability and demand - something that definitely makes houses in this neighborhood desirable to you. There might be websites on the Internet that provide this information - if not, seek out your Realtor.
Once you have your target neighborhoods and you know what type of houses go for what kind of price, finding potential fixer-uppers becomes much easier. More often than not, these properties will come in the form of foreclosures. Have your Realtor conduct daily searches for you. Next, you'll need to determine what your operational budget is. This is the amount of money that is readily available to you for rehabilitating properties. To reduce your personal financial risk, do not include money in your bank account(s) when calculating this number. Simply add your available credit lines on your credit cards. For example, if you have $2,000 left on a Visa and $7,000 on a Home Depot card, your operational budget is $9,000.
After hammering down what your operation budget is and you find a potential fixer-upper, have your Realtor give you a ball-park estimate as to what it would sell for in a fixed-up state. Likely, your Realtor will review past sales of comparable properties in that same neighborhood to come up with an accurate guess. Take that number and subtract 10% (this represents bargaining room with buyers) - this is your estimated sale price.
Finally, decide how much money you feel is worth all this effort. This becomes your target profit. Now you can determine how much you can afford to offer for the property by doing some quick math: (estimated sales price) - (operational budget) - (your target profit) = the maximum price you should pay for the property Now that you know the maximum price, be sure to offer well under it to allow for some bargaining room.
If a property is located in a "qualified area" and passes the "quick math" test, you have a strong potential candidate for a possible fix-and-flip property! For more free articles and previews to The Field Guide to Flipping Homes, visit the official site at www.homeflippingfieldguide.com!
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