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Smart Money Investor: Fix & Flip 101! — Part 1

New construction home exterior with contemporary house plan features low slope roof, brown siding and glass garage door. Northwest, USAHow to separate the fact vs. fiction of flipping properties.  No question reality TV shows have shown many of us a glamorous side to the profit potential.  However, does it show the true story?  What are some of the basics you need to know to become successful as a real estate investor?

Data is as critical to your success as a fix & flip investor as cash flow.  ATTOM Data Solutions, the average gross profit for house flipping was $62,300 in the first quarter of 2020. This equates to an average percent return of 36.7%, which is down about 3% from the first quarter of 2019. For starters, you can maximize your profits by buying in the right neighborhoods and choosing only cost-effective renovation opportunities.

Find a Suitable Real Estate Market

Even if you buy a reasonably priced home and stay within your renovation budget, that doesn’t mean you’re going to sell for a big profit. Studies show a wide disparity in the profits home flippers earned in different regions. According to a 2019 report by CNBC, the following states are the best for flipping a home:

  • Tennessee
    • Average ROI: 132.7%
    • Average time to flip: 147 days
  • Pennsylvania
    • Average ROI: 162.4%
    • Average time to flip: 199 days
  • New Jersey
    • Average ROI: 141.6%
    • Average time to flip: 207 days
  • Louisiana
    • Average ROI: 104.2%
    • Average time to flip: 166 days
  • Colorado
    • Average ROI: 155.6%
    • Average time to flip: 176 days

Even though these may not be your areas of expertise and focus, the reality of it is, this data is available in the markets you want to fix & flip!  Nonetheless, be sure to take a magnifying glass to home sales and house flipping profits in your location. Maybe you just need to venture an hour or so out of your zone to find a more profitable place to flip a house in.

In addition, you should pay close attention to the neighborhood you invest in. What’s the income level and what’s the school district like? How about the crime rate? You can radically boost a dirt-cheap home, but it won’t sell as easily if it sits in a neighborhood with a recent spate of burglaries. Also, be wary of areas where homes are selling at a high rate. This could mean the local economy or neighborhood conditions are pushing people out.

Instead, you’re going to want to invest in places with high employment numbers, low crime rates and other signs that the neighborhood is thriving or quickly making its way up. Ultimately, you want to find an area that combines safety and economic growth with potential for a profitable house flip.

Location, location, location.  Many people have heard this phrase in real estate, but never has it been more true when looking to fix & flip a property.  Avoid things like:

  • “This is the most unique property in the area.”
  • “If I just do a complete interior renovation.”
  • “This property is full of custom features that no one else has.”

On the surface, many of those attributes may seem enticing.  In the end though, it is not where you want to be as an investor.  Why?  We will cover that and more in the next part of our series, “Fix & Flip 101.”  Information you need to know and practice to be a successful real estate investor.

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