House Flipping 101

Historically, real estate has been one of the most solid investments. Though the recession was one of the worse housing crises in modern history, house flipping has rebounded with a force. Our visual guide to flipping shows you the most tried and true tactics for flipping a house for 30% profit. Check it out today!

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House Flipping 101

Real Estate Can be Daunting, But if Done Correctly has a lot to offer

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Historically, real estate has been one of the most solid investments.
[graph of annual increase in home prices relative to inflation]
Date / Inflation Adjusted Average Home Cost in 2000 Dollars[3]
1940: $30,600
1950: $44,600
1960: $58,600
1970: $65,600
1980: $93,400
1990: $101,100
2000: $119,600

“Buy land, they aren’t making anymore of it.”” – Mark Twain
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And though the recession was the worst housing crisis in the US’ history
Housing equity wealth has doubled in the last five years
[stats below in sort of a dashboard]
Home Equity at height of housing crash: $6 trillion
Home Equity in mid-2017: $13.9 trillion [1]

Increase in value per home owner 2016: $11,000
Increase in average home value per month 2017: .3%+
Increase in average home value 2017: 6.5%+[4]
Houses Appreciated 2x as fast as inflation[2]
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Increase in house value has been driven by a number of factors:
[maybe have illustrations that represent the following three factors. They then each have a corrosponding fact.]
Immigration to Metros
–Supporting Fact: 12% of Americans move every year. With the largest gain in suburbs in metros.[5]
Inventory Shortage
–Supporting Fact: Close to 1 million new households are created each year in America. An average of 500,000 new homes have been created each year for recent years. Net annual housing shortage: 500k units.[6]
Focus on building of non entry-level housing
–Supporting Fact: New households tend to be young and seeking starter homes. In 2015, 75% of new apartment constructions were high-end.[7]
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And while our housing recovery hasn’t hit everywhere equally
[chart about disparities]

Leading the Pack[9]

[city / percentage of homes at or above pre-recession values]
Denver / 98.7%
San Francisco / 98.0%
Oklahoma City / 94.3%
Nashville / 94.1%
Fort Worth / 93.9%

Left Behind[9]

Las Vegas / 0.6%
Tucson / 2.4%
Fresno / 2.5%
Camden / 2.7%
Fort Lauderdale / 2.7%
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House Flipping is a lucrative tactic in most metros
$29,342 = Average profit from flipping a house nationwide[8]
90 days = average goal for max house flip time[8]

The Basics:
1.) Buy a house for the lowest possible price
2.) Spend what’s needed to rehab the house
3.) Resell the house for its maximum price

But to really pull out ahead, there are a few other factors to consider

Factors to consider:
Demand: (contributing factors to demand) population growth, job growth, low vacancy, immediate location
Costs: (contributing factors to costs) Material Costs, Labor Costs, Administrative and Tax Fees, Below-Market Opportunities

Deep Dive Into Demand:[10][11]


While there are some standouts for unrelated reasons the following factors relate to demand for flipped housing:

Largest Post-Recession Population Growth:
[city / percentage growth]
Austin, TX 22.2%
Cape Coral-Fort Myers, FL 18.0%
Raleigh, NC 17.4%
Houston, TX 16.2%
Charleston, SC 16.1%
Orlando, FL 15.6%
San Antonio, TX 15.4%
Dallas, TX 14.9%
Denver, CO 13.7%

Post Recession Job Growth:
[city / percentage growth]
Austin, TX 31.1%
Cape Coral-Fort Myers, FL 30.1%
Charlotte, NC 29.5%
San Francisco, CA 29.5%
Grand Rapids, MI 28.4%
Raleigh, NC 27.9%
North Port-Sarasota-Bradenton, FL 27.9%
Charleston, SC 27.5%
San Jose, CA 27.5%
Nashville, TN 26.8%

Percentage Vacancy 2017 Q1-3:
[city /percentage vacant]
Akron, OH / 0.3
Detroit-Warren-Dearborn, MI / 0.4
Seattle-Tacoma-Bellevue, WA / 0.4
Knoxville, TN / 0.4
San Diego-Carlsbad, CA / 0.4
Nashville-Davidson-Murfreesboro-Franklin, TN / 0.6
Boston-Cambridge-Newton, MA / 0.6
San Francisco-Oakland-Hayward, CA / 0.7
Dallas-Ft. Worth-Arlington, TX / 0.7

Cutting Costs Like a Pro:

Material Costs: [12]

Typical Range for Remodelling Multiple Rooms: $16,846 – $63,260
Full Range: $3,500 (low end) – $135,000 (high end)
While some renovations will require certain locations to be repaired, choosing the right rooms is key.
[12]
Money Areas:
[Area, average cost of renovation]
Kitchen: $20,474
Bathrooms: $10,000
Appliances: $300-$3,500
HVAC: $3,400
Roof: $6,838

Cosmetic, non-structural changes often provide the biggest “bang for your buck” in resale value
Front Door: $350
Appliances: $300-$3,500
Painting: $1,714-$3,682
Upgraded Fixtures, Doorknobs, Cosmetic Details: <$1,000 Modest Landscaping: <$1,000 --

Labor Costs

Depending on the market and work done, learning to renovate yourself can be a massive cost cutter or not worth your time.

Construction laborer cost:[13]
[state, average hourly rate]
Most Expensive:
Illinois $27.01
Hawaii $27.01
Massachusetts $25.84
New Jersey $24.05
Alaska $23.88

Least Expensive:
Arkansas $12.38
North Carolina $13.50
Alabama $13.74
Mississippi $13.92
Florida $14.00

Below-Market Opportunities

Bank or City-Ownder Properties are often available for below-market prices.

Rule: buy for 70 cents on the dollar, sell for 80 cents on the dollar
(1) Calculate Your Maximum Allowable Offer (MAO)
Most investors want to close on a house for 70% of its resale value
Example: if the house is worth $200,000 and it needs $20,000 in renovations
MAO = $200,000 x 70% – $20,000 = $120,000
Note: Wholesale fees are often around $10,000 so your first offer should be lower
$100,000 = First Offer
(2) Sell below-market for a quick turn around
Example: $200,000 x 80% = $160,000
Optimum flipping Profit: $60,000

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Citations
[1]https://www.housingwire.com/articles/38418-home-equity-wealth-doubled-in-last-5-years
[2]https://www.cnbc.com/2017/06/23/how-much-housing-prices-have-risen-since-1940.html
[3]https://www.cnbc.com/2017/06/23/how-much-housing-prices-have-risen-since-1940.html
[4]http://www.businessinsider.com/us-home-values-zillow-report-october-2017-11
[5]https://www.census.gov/newsroom/press-releases/2015/cb15-47.html
[6]https://www.urban.org/urban-wire/housing-supply-falls-short-demand-430000-units
[7]https://realestate.usnews.com/real-estate/articles/where-have-all-the-starter-homes-gone
[8]http://homeguides.sfgate.com/average-gross-margin-house-flip-49343.html
[9] https://www.trulia.com/blog/trends/home-value-recovery-2017/
[10]http://info.trulia.com/download/Trulia_HomeValueRecovery_May2017_100Metros.xlsx
[11]https://www.census.gov/housing/hvs/data/rates.html
[12]https://www.homeadvisor.com/cost/additions-and-remodels/remodel-multiple-rooms/
[13]https://www.bls.gov/oes/current/oes472061.htm
[14]http://flippingjunkie.com/wholesaling-bank-owned-reo-houses-no-its-not-impossible/