Individuals and companies in the business of buying single family homes, fixing them up, and then selling them for a profit are finding that they need to evolve with the changing marketplace. History has shown us that real estate markets are cyclical in nature. During the bust which began in 2007 and probably ended in 2012, residential flippers learned how to make their profits on the buy. This was possible because of the oversupply of distressed properties and heavily discounted selling prices. In fact, those that perfected their acquisition strategies could regularly turn a profit by doing little more than painting and carpeting their homes before selling them again for sometimes big profits. But times have changed, and so must your business approach if you intend to compete in today’s fix & flip marketplace. Here are some strategies you may want to adopt going into this next stage of the cycle, where supply is more limited, acquisitions are much more competitive, and seemingly all of the “easy” deals have been done.
Renovations & Repairs – Modernizing kitchens and bathrooms, replacing cabinets, flooring, fixtures and counter tops tend to make homes much more desirable to potential home buyers. Learn how to use styles and colors that appeal to your target market.
Additions – Adding square footage for a great room, master bedroom, or extra bathroom. Understand the permitting process! Getting plans approved takes time, and time is money! But if you can add space at a cost of say $150 per square foot and then sell the larger house at a price of $300 per square foot, it might make sense to add to the building. Not all additions are equal. Adding a master suite to a 2 bedroom, 2 bathroom home is a good bet. Adding a third bedroom to a 2 bedroom one bath house may not yield the same benefits.
Reconfigurations – Open up walls, squeeze in an extra bathroom, and/or combine rooms. Turn functional obsolescence into functional/desirable space. If you can efficiently make an old home feel like a new home, you have money making skills.
Structural Repairs – Become or partner with an expert on fixing cracked slabs and/or stabilizing unstable foundations. Most buyers run from these situations. If you can learn to asses them and repair them, you can start looking for these foundation “opportunities”.
Higher Price Points – There is less competition and higher absolute dollar profits in high-end flips. Carefully study what your buyers in these markets are looking for. It isn’t the same granite you put in that starter home. But often times, it isn’t that much extra work to flip a high priced home vs. a low priced home. But you can make more for the same effort on the high end.
Mix and match these strategies. Whether you are buying short sales, standard MLS listings, or knocking on doors, look for ways to add value to properties. Having the ability to add value to older, rundown, out of date, and functionally obsolete properties is a foundation on which you can build a sustainable business.