Melissa Kubala of Houston, TX is an experienced realtor and property investor. In the following article, Melissa discusses what in fact makes an investment property successful in terms of a flip.
Thanks to TV shows like “Flip or Flop,” “Property Brothers” and “Home Town,” it’s easy to see why property flips are booming in popularity.
What we see is a house in shambles seamlessly transformed in mere days into a dream home. The kitchen is sparkling, the closets are spacious, and every bedroom has an en suite bathroom.
No property flip is that easy. Melissa Kubala of Houston, TX explains that it often takes a substantial amount of time, money, and patience to achieve property flipping success. Here’s what to know before making an investment.
Know the Risks
Kubala says that not every home flip is a slam dunk even if the price point is relatively cheap. There are always risks, especially depending on location. The real estate market can fluctuate rapidly, especially in large cities.
The type of property often matters, too. In some cities, rentals, and townhouses are preferred. In others, most buyers need an updated single-family home.
Before investing, Melissa Kubala says that the best first step is thoroughly researching the market. Look at price comparisons and statistics tied to specific zip codes. Check out what other newly remodeled, ready-to-move-in homes are going for. It’s best to consult a local real estate professional for each neighborhood or market area you are interested in working in, especially in a large city such as Houston.
The biggest risk is investing in a property that won’t go for a price that yields a good profit. This could be due to poor neighborhood or property selection, overspending on improvements / having an expensive contractor/trade pool or spending on improvements that do not add value to the home.
Develop a Plan
Make sure to partner up with a quality residential architect that you can trust. In 2022, flipped homes accounted for nearly 10% of overall real estate sales in the U.S., nearly double the percentage reported in 2021.
At the same time, the average profit has gone down mostly due to hot real estate markets across the country. The average flipping profit in 2021 was $65,000 with a 31% return on investment. In 2022, the average profit rose slightly to $67,000 but the return on investment slipped to 26%.
That makes developing a business plan so essential when considering an investment in a property flip. Investors don’t need to have a business degree to create a solid plan.
Realtor Melissa Kubala says that such a plan will help with everything from finding lenders to uncovering weaknesses and strengths in your proposed project. It includes a more detailed analysis of the market and competition. It’s also a way to outline a flipping budget, breaking down all expenses, such as labor, carrying costs and marketing of the final product.
Enlist a Solid Team
As romantic as some of the house flipping shows make things look, one or two people simply cannot handle a house flip on their own. The smartest thing to do, especially for those inexperienced, is to spend a good amount of time assembling the best team possible to make the investment a success. It’s one of the best safeguards to reaching a profit goal.
A team needs a reliable and hard-working construction or contractor-led crew for new buildings and repairs. A real estate agent with specific skills and experience can help house flippers find the right deal in the right neighborhood and connect them to trades and contractors who are vetted.
Consider the 70% Rule
Melissa Kubala, Realtor says that there are numerous approaches to successful house flipping, but one formula has been consistently popular over the years.
Since the goal with flipping is to always buy low and then sell high, the 70% rule comes in handy: investors should never pay more than 70% of the after-flip value of a property minus the repair costs.
Before a flip, investors must estimate what they think the revamped property will go for, multiply that figure by 70% and then subtract the renovation cost estimate.
Melissa Kubala, Realtor explains that this number is what flippers should shoot for when buying a property. One caveat is that the 70% rule isn’t always applicable in certain real estate markets, especially a seller’s market.
Where homes are bought quickly and prices are high, an owner may reject an offer if they think they can get more.
Make it Feel like a Home
Melissa Kubala of Houston, TX explains that many home flips often feel cold and sterile, especially if an investor wants to make it feel like a blank slate for homebuyers to make their own.
Sometimes that tactic doesn’t work. Many homebuyers want to visualize how their prospective new home will look with their own furniture. They want to see pictures on the wall, where appliances will go in a kitchen, and whether a dining room table will actually fit in the dining room.
As a final push for profit, flippers should consider working with a staging company to make a home look lived-in but uncluttered. In tough markets, that could make all the difference when investing in a property flip.
Final Notes
A final note from Realtor Melissa Kubala about creating equity by buying, fixing up, and selling a home – do not wait until you make an offer on a home to do your homework! Especially in a hot real estate market or sub-market, you may and probably will have to bid against other prospective buyers to obtain a good candidate property in a good market and neighborhood.
To make a successful offer which turns into a profitable project, you must know how much you can offer while still protecting your potential profit, how much you must offer to win the bid, and finally, when to just walk away. A seasoned Realtor should guide you through this process and keep you in check from making emotional decisions that could hurt your pocketbook.
