To know how to find houses to flip, an investor will need to follow five crucial steps. These steps include choosing the right neighborhood, checking housing market statistics, verifying the condition of the fix-and-flip properties, forecasting the overall budget, and calculating the potential profit.
Fix-and-flip properties often require fast funding. LendingHome can fund fix-and-flip properties in as little as two weeks. its interest rates start at 6.99%. The online prequalification process is quick and easy.
Here is an overview of each of the five steps needed to find properties to flip at a profit.
1. Choose the Right Neighborhood for a Fix-and-Flip
Choosing the right neighborhood is an important place to start your fix-and-flip journey. The three primary things you will want to look for when evaluating a neighborhood for fix-and-flip investment property are curb appeal, amenities, and the school district.
Neighborhood Curb Appeal for a Fix-and-Flip
Neighborhood conditions impact your potential buyer’s decision to buy. You can change the curb appeal of your property, but you cannot change the neighborhood! Choose a well-kept community and residents show pride of ownership. Look for vacant homes and boarded-up buildings where you want to purchase. These are easy targets for crime, bringing down property values, and making it harder to get a mortgage or property insurance.
Look for the following in a neighborhood suitable for a fix-and-flip property:
- Streetlights that come on at night
- Sidewalks that are even and not cracked
- Well-kept porches and front stoops
- Maintained front yards
- No litter or scattered debris
Neighborhood Amenities for a Fix-and-Flip
Besides neighborhood upkeep, the local amenities are necessary too. Are there things to do in and around the neighborhood that will encourage homeowners decision to live in this particular area? Buyers want to feel like they are part of the community, and being close to certain amenities makes that possible.
The home should be close to the business district, but it needs to be in a residential area. This will provide the connections with neighbors, convenience of nearby businesses, and quietness of a residential neighborhood.
Buyers are typically attracted to:
- Parks and green spaces (can increase property value by 8% to 20%)
- Local libraries
- Community recreation centers
- Nearby medical facilities
- A location with a high walkability score (you can get your walkability score by typing in your address)
- Nearby shopping
- Convenient dining options
- Nearby public transportation, especially in urban areas
Five things buyers don’t want to be near include:
- A fire station with alarms and sirens
- A noisy airport
- A high traffic street
- A police station with a constant flow of activity
- A late-night establishment, such as a bar, that may have loud patrons
Neighborhood School Districts for a Fix-and-Flip
When identifying a neighborhood, the public school district is a significant consideration. Anyone purchasing a home with school-aged children will research local schools. You can type in the property address, and it will provide your district’s assigned elementary school, middle school, and high school as well as the school’s ratings and reviews.
GreatSchools also shows each school’s distance from the subject property. In urban areas, being able to hop on a train, bus, or walk a few blocks to school is a plus whereas in suburban areas a school several miles away is fine since most offer transportation by school bus.
Look for high ratings for each school (10 is the maximum), read the other parent’s comments and check out the student to teacher ratio, class size, and the percentage of graduating class attending an institution of higher learning. These factors are important to potential homebuyers and should be relevant to you, since being near good schools can increase the value of your property.
One out of five homebuyers said they would pay 6% to 10% above their budget for the right school district. One out of 10 would double that to 20%. Those numbers mean that you may be able to get more money for your fix-and-flip by being in a desirable school district.
Neighborhood Proximity to You & Your Contractors
Also important when evaluating a neighborhood for your next flip is the neighborhood’s proximity to you and your team. When choosing a home to flip, multiple site visits are needed, and selecting a property that’s conveniently located will save you time and money.
A property that is located near major highways will ensure that any contractors you employ can reach the property quickly. This will increase the number of contractors that may bid on your project, helping ensure your project is completed on time and on budget. Later on, it will ensure a maximum number of potential buyers can visit the property.
2. Check Housing Market Statistics
Now that we have looked at the importance of location and neighborhood, it is time to study the housing market statistics. These statistics play an important role in finding a property to fix-and-flip. They will be used to calculate your budget and how much you should pay for a house in a certain neighborhood.
The three major components in looking at market statistics are:
- Comparable properties
- Number of days on the market
- Property taxes
Comparables (comps) are properties with similar characteristics to the subject property. Comps tell you what to pay for properties and what your fix-and-flip should sell for. Comps let you know if it is realistic to do a good fix-and-flip in the neighborhood. Only use comparables that have SOLD since the listing price is misleading and is not necessarily the price buyers will pay.
Look for what people are paying for homes in prerehab condition as well as after rehab condition so that you also have a better idea of what kind of offer to make on a property. The info gathered from using correct comps is critical for your budget, after repair value (ARV), and return on investment (ROI), which we’ll discuss in more detail below.
When comparing properties, make sure they are located in the same municipality and school district so that the taxes and neighborhood amenities will be similar. Lot size, square feet, number of bedrooms and bathrooms also play a role in the comps. Use comps that are similar to your finished fix-and-flip project.
Days on Market
In addition to considering sold comps, consider how long the subject property has been on the market. Days on market refers to how long houses sit on the market actively listed for sale. The fewer days on the market, the lower the carrying costs and the higher the ROI. The more days on the market, the less it sells for, affecting the bottom line and eating into profits.
Property taxes are an often overlooked expense for real estate investors. They are important for you because they add to your carrying costs, and they’re even more important to potential buyers because they are in addition to their mortgage payment and property insurance costs. Property taxes fund public schools and vary between neighborhoods, cities, and states.
Higher property taxes can deter some buyers due to the lack of affordability, so it is necessary to include them in your evaluation of the property, and in your ARV, which we will cover below. Amenities and property taxes are closely tied, so balancing between the potential profit gains of amenities and the potential losses of high property taxes needs to be considered.
How to Find Housing Market Statistics
There are three primary tools to find the housing market statistics that are relative to your fix-and-flip. They are real estate websites, census data, and real estate professionals. They should be used in that order to be the most effective and save you the most time when evaluating your fix-and-flip property.
Real Estate Websites
Real estate websites are helpful places to search for local and national real estate data. They are easy to use and provide you with data that will assist with deciding if a fix-and-flip property is a good investment.
Sites such as Realtor.com, Zillow, and National Association of Realtors (NAR) provide comparable properties to the subject property based on similar characteristics such as the number of bedrooms. These sites also give information on property taxes and neighborhood amenities. They can be found with commonly searched keywords.
Another real estate website is Foreclosure.com. They offer not only foreclosures but also preforeclosures, short sales, and fixer-uppers. Foreclosure.com provides comprehensive property listing information, pictures, and property history with each listing.
Here is an example of the type of info Zillow will show you when you plug your fix-and-flip property’s zip code into the search bar. It shows you:
- Available inventory
- Square feet
- Listing prices
- When you delve into a deeper search, days on market will also appear.
Another practical resource is the Census Bureau, where you can search by median household income and household size. These factors will influence the type of property you buy. If the average household size in your ideal fix-and-flip neighborhood is four, it would not be wise to purchase a one-bedroom property for a buyer looking for two or more bedrooms.
Median income shows who can afford your property. You don’t want to spend so much on the property or improvements that buyers can’t afford a home in that neighborhood. A home should not cost more than 2.5 times your annual salary. If the potential buyer makes $45,000 per year, the most expensive home they should consider is $112,500.
Having this information is a good fix-and-flip tip to know how easily you’ll be able to sell your property and help you determine how much you should initially buy the property for, keeping in mind your rehab budget and ARV.
Here is an example of what the Census website shows when you search for median income by a particular area.
Real Estate Professionals
Real estate professionals are generally up-to-date with neighborhood trends. They can provide you with current information and know how long properties are sitting on the market, which will help you decide where to buy a property. Realtors can provide comps when identifying and deciding how much to pay for the property. They provide this data for free, hoping to earn your business in buying and selling your property.
Here is an example of a list of comps that a real estate agent can give you.
3. Verify Condition of Fix-and-Flip Properties
Now that you have narrowed down the location and neighborhood, it is time to focus on the ideal property condition for a fix-and-flip project. Choosing a property in the right condition can help attract buyers and sell your property faster. These will positively affect your return on investment.
Avoid choosing a property with any structural issues. These can be seen in extremely uneven floors, large cracks in the cement and a sagging foundation. These issues can increase the time of the rehab, and this will eat into your budget, increase your timeline, and put added stress on the process while cutting into your profit.
Good Features to Look for in a Fix-and-Flip Property
Key features to look for in a potential fix-and-flip project include anything that may be difficult to add or change. Focus on homes that already have popular features with buyers, such as renovated kitchens, two or more baths, open concept areas, and privacy.
For example, it can be costly to add space for a bathroom and run the plumbing. If the property has more than one bathroom, it can bring more value to your fix-and-flip property, which means that it will sell faster, lower your carrying costs, and increase your potential profit.
Popular features include:
- Room sizes: Large master bedrooms are popular. Other bedrooms should be able to comfortably fit a queen-size bed with room to walk around it.
- Number of bathrooms: Full bathrooms add more value, but if the house has two or more stories, a half-bath downstairs is valuable for guests.
- Overall layout: An open concept kitchen and living room are popular for easy entertaining. It can get expensive if you buy a home that needs several walls torn down.
- Two-car garage: A two-car garage in suburban locations is a popular request. Unless the house is a luxury property, more than a two-car garage won’t add much value.
Things to Avoid in a Fix-and-Flip Property
Projects to avoid in a fix-and-flip investment property include those that will be too time-consuming, are too expensive, and require additional permits. It can be tempting to buy a property with a bargain-basement price, but if the project takes too long, costs a fortune, and requires multiple visits from inspectors leading to delays in getting permits, it can be disastrous to your bottom line.
Avoid homes with:
- Structural issues such as foundation cracks and uneven floors which take time, expertise and money to fix
- Outdated layouts that don’t make sense to today’s buyers such as closed-off spaces and low ceilings
- Narrow kitchens with load-bearing walls
- Too many bedrooms and not enough bathrooms, such as five bedrooms and only one bathroom
- A bedroom you have to walk through another room to access
- Anything that is not easy to fix and will be a hard sell
Potential Repairs in a Fix-and-Flip Property
Look for properties that only require cosmetic repairs. They will be the least time-consuming and the least expensive types of repairs. This is especially helpful for first-time property flippers. These are minor repairs that will lead to major financial rewards.
Examples of cosmetic repairs include:
- Painting the interior a neutral color and patching holes and blemishes on the walls; painting the trim a different neutral color
- Putting down new carpet in a neutral color, but not too light that it attracts dirt
- Installing new light fixtures that illuminate the space
- Updating plumbing fixtures with modern finishes
- Adding new matching appliances that fit your budget; if the home is at a higher price point, stainless steel appliances will be expected
- Outdoor improvements including repairing a patchy lawn, adding planters, painting the front door, and power washing the outside of the home; this can help avoid a costly exterior paint job
- The DIY Network has some helpful tips for which cosmetic repairs to add to your fix-and-flip to get the most bang for your buck
If you are a more experienced fix-and-flipper, you might look for properties with good bones and focus on what will add the most value in addition to cosmetic repairs.
Some renovations that will add the most value to the home include:
- Renovating kitchens
- Updating bathrooms
- Opening up spaces to create the illusion of more space and add places to gather
- New windows
Realtor Mag says some of the essential features that homebuyers identified in 2019 are:
- Laundry room (91%)
- Energy Star windows (89%)
- Patio (87%)
- Energy Star appliance (86%)
- Ceiling fan (85%)
4. Forecast Your Overall Budget
The budget for your fix-and-flip project is important because it will determine how much return on investment you make. Your budget should be well thought out and adhered to. Always add some cushion into the budget for the inevitable unexpected expenses.
Make sure to include the following in your budget:
- Acquisition cost: The cost of purchasing the property
- Rehab costs: Labor and materials cost to renovate the property
- Carrying costs: Insurance, utilities, fix-and-flip loans, costs, and so on
- Marketing and sales costs: The costs needed to list and sell your property
Important to remember is that going over budget often can’t be rectified with a higher selling price. With that in mind, it’s essential to stick to your budget if your flip is to be profitable. For a deeper look at the budgeting process, read our article on the cost to flip a house.
When determining what part of your fix-and-flip budget will go towards acquiring the property and what part will go towards the repairs and carrying costs, consider:
- The home’s ARV
- Cash, financing and the associated costs
- What’s selling in the neighborhood and with what features so you can determine what needs to be added to your home
- Your timeline because certain repairs take more time than others, which can throw off your timeline, negatively affecting your budget.
Remember to add unanticipated costs into your budget, such as contractor delays, weather delays, items on backorder, and anything that can hinder your fix-and-flip’s progress. A good pro tip is to add 20% to your budget for unexpected repairs and add one week for every month of your timeline. For example, if your timeline is two months, add two weeks just to be safe.
5. Calculate Your Potential Profit on a Fix-and-Flip Property
Once you’ve identified a neighborhood and market for a fix-and-flip and determined the value-added repairs and structural repairs to avoid, it’s time to calculate ARV. The ARV is how much you will be able to sell the house for after it is rehabbed. To calculate ARV, you’ll need to consider how much you will pay for the property and your repair and carrying costs.
ARV is important because it determines how much profit you will make from your fix-and-flip. The higher the profit, the more your time and money were worth it. If you don’t meet your expected ARV, you may end up losing money, so it is critical to follow all of the steps in identifying a good fix-and-flip property.
When calculating ARV, you need to use sold properties that are comparable to your subject property in terms of number of bedrooms, baths, lot size, square footage, and so on. Use comps that sold within 90 days in a strong market, or within six months in a soft market. A soft market is a real estate market with more homes for sale than buyers. High inventory means properties sit on the market longer.
Start with the end number and calculate backward when determining ARV. This means starting with the number that your home needs to sell for and factoring in your acquisition expenses, carrying costs, and repair expenses. Many seasoned fix-and-flippers use the 70% Rule, which states that an investor should pay 70% of the ARV of a property minus the needed repairs.
The 70% Rule varies depending on whether the property is in an urban, suburban, or rural location, and how well the market is doing in that area. This formula includes leaving wiggle room for things to go wrong and for buyers to be able to negotiate on price.
If you use the 70% Rule and the property’s ARV is $100,000 with a rehab budget of $20,000, you don’t want to pay more than $50,000 for the property.
($100,000 x 70%) – $20,000 = $50,000
Typical Fix-and-Flip Calculations Example
Purchase Closing Costs (Varies, usually up to 5% of the purchase price)
Holding Costs (90 days)
Gross Sales Price
Real Estate Commission (Typically 6% of the sale price)
Closing Costs (up to 3% of the sale price)
Net Sale Price (with full price offer)
To get the highest ROI, you want to be conservative in your calculations, count on unexpected expenses, and make sure you stick to your acquisition and renovation budgets. When you follow the outlined steps to identifying a good fix-and-flip opportunity, you can make a decent profit.
House Flipping Cycle Recap
Now that you know from our experts how to find houses to flip and received answers to frequently asked questions on finding houses to flip, Let’s briefly review the house-flipping cycle.
The house flipping cycle includes:
- Find and buy a house to flip: Do your homework as outlined above
- Renovate the house: Budget and plan for renovations; set timeline; hire contractors to complete the work
- Resell the property: List the property with a Realtor; price competitively; close the sale and reinvest the profits into your next project
Tips for Finding Houses to Flip
To begin finding houses to flip starts with understanding the five-step process we outlined on how to find houses to flip and to determine the price, neighborhood, and all associated costs. To understand how house flipping works better, we’ve reached out to some experts for these four tips.
1. Factor Repair Costs Into Your Budget
“When buying a fixer-upper, it’s important to know the factors that make up a reasonable price. First, look to the average price of a home in the area you’re buying, as this should be your guide with respect to your budget for upgrades and repairs. Make sure that you are buying the fixer-upper at a good discount relative to the average price of homes in the area. When budgeting for your repairs, add at least 30% for contingencies. For example, if you think it will cost $50,000 to fix up an old home, make sure you buy the house for $65,000 less than the market rate to allow for your budgeted repairs plus unknowns.”
—Tonya Bruin, CEO, To Do-Done
2. Hire Capable Contractors
“As a flipper, you’re only as capable as your contractors. The size and complexity of the deals you look for are limited by your confidence that your contractors can handle the job in-budget and on-schedule. If you’re new to flipping and haven’t yet established trust and confidence in a range of contractors, I recommend starting with smaller projects requiring cosmetic rehabbing. Avoid structural and mechanical system updates, which often require permits—you should ease your way into the permit process. Scale gradually to include some mechanical system updates as you develop confidence that your contractors can stay in-budget and on-schedule. After some successful flips, you can start expanding your property search to include homes that need structural repairs as well.”
—Brian Davis, Director of Education, Spark Rental
3. Consider Your Investment and Exit Strategies
“A buyer should first consider what their investment strategy is before they decide to flip a home. Flipping is a short-term income strategy, but it also leaves less margin for error. It is better to buy properties for the long term and earn money from rental income before flipping a home. Flips are better suited for experienced investors. Inexperienced investors could run into issues they have not anticipated, which becomes expensive and can erase profit. A buyer should consider specific exit options first when they buy a property to flip. The longer it takes usually will mean the more carrying costs and less profit they will make.”
—Ralph DiBugnara, President, Home Qualified
4. Target Desired Neighborhoods and Ask Around
“One of the most neglected but most useful advice on how-to find a new property to flip is to ask around. There are many senior citizens wanting to sell, for example, but they’re unaware of the various Internet markets. That’s why it’s wise to look around targeted neighborhoods and look for people willing to talk and list their properties on sale.”
—Bryan Stoddard, Director, Homewares Insider
Finding Houses to Flip Frequently Asked Questions (FAQs)
We’ve answered “How to find houses to flip.” Now we are going to answer some of the commonly asked questions about fix-and-flip properties. However, if you have additional questions that we didn’t answer or would like to comment on finding houses to flip, please visit our forum.
How do you manage unexpected repairs in a fix-and-flip project?
Budget for unexpected repairs before buying a fix-and-flip property by about 10% to 20%. Also factor in additional time of two weeks to a month for project completion. By doing so, you will have a decent time and money buffer for unexpected issues and, if there are none, you’ll finish the project early with more profit!
How can you sell your fix-and-flip house fast?
Know the real estate market where your property is located and price competitively. You should price your property no more than 10% above similar recently sold homes since most buyers negotiate the asking price. If you’re in a hurry, you can price the property at or below market value by no more than 10% below.
When is the best time to buy and sell a fix-and-flip house?
The best time to buy is when we’re heading into the winter. The real estate market slows, and sellers are more motivated to sell. Buying in early winter leaves time to complete your project before the market heats up again in the spring and summer and selling in the middle of winter means less competition.
What are fix-and-flip carrying costs?
Carrying costs are the ongoing expenses you incur between buying and selling your fix-and-flip property. Carrying costs include mortgages, taxes, insurance, utilities, maintenance, marketing costs, and homeowners’ association fees, if applicable. Calculate carrying costs for the term of your project, six months, for example, and add it to your overall expenses in your budget.
When considering how to find houses to flip, choose the property based on location, neighborhood, property condition, your budget, and the property’s After Repair Value. Be sure to check out our additional resources for more information on real estate investing and the fix-and-flip process.
If you need financing for your fix-and-flip property, contact LendingHome. Their interest rates start at 6.99%, and they’ll lend up to 90% LTV and 75% ARV. Prequalifying online only takes a few minutes.