When you are flipping real estate, one of the hardest and most important things you must do is accurately estimate the value of various properties. You need to be able to look at a property and determine how much it will sell for when it’s fixed up. From that, you can come up with the price you are willing to pay for the property.
Real estate values vary greatly from one area of the country to another, so no Internet article can tell you how much a house is worth. There can even be significant differences in price between two houses that are right across the street from each other.
One of the biggest things that can impact the value of a home is the school district that it’s located in. A house that is in a good school district will be worth more than one in a poor district, even if they are right next door to each other. Property values are also affected by things like crime rates, the way the neighborhood looks and the average wages in the area.
The best way to get an accurate determination of the value of a house is to look at comps. If you have a real estate agent that you work with, you should be able to get these from the agent. Comps are listings of comparable properties that have sold recently. In order to provide an accurate picture of the value of the home, the comps used must not have any differences that would have a significant impact on the price.
When you start out flipping real estate, it is a good idea to have a couple of contractors inspect the home before you make an offer and give you an estimate for the repairs. Once you have done this for awhile, you will be able to make your own estimates. If you are buying a fixer-upper, you need to allow room for at least $25,000 in profit. This might seem like a lot, but if you missed something when you did your inspection, it could eat up a big chunk of that to pay for the extra repairs.
If you are going to turn around and sell the property to another investor without fixing it first, you will need to lower your offer price by the amount you want to make on the flip. For example, if the house will be worth $80,000 and it needs $20,000 in repairs, you could offer up to $35,000 if you were fixing it yourself. However, if you’re flipping it to another investor, he will not want to pay more than $35,000. In fact, he might use a different formula than you do and need to get it even cheaper. You need to take this into account when making an offer for a property you plan to flip as-is.
If you follow these guidelines for determining property values, you will be well on your way to a successful career as a real estate investor. Remember, the amount of money you make on a deal depends on buying it for the right price. If you pay too much for a property, you won’t make the profit you expected. Worse yet, you could end up losing money.
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