In the world of real estate investment, knowing how to find houses to flip can maximize your profit potential and save you a lot of stress. When you begin your search for distressed properties, it’s important to use discernment to identify the houses that can be restored at minimal cost to you. After all, the core of a successful house-flipping business is buying low and selling high.
You should know which types of projects are more costly and time-consuming versus others that are more manageable. You should also keep your budget in mind so that you can only select houses that have problems you can afford to fix. This guide will show you how to find a flip house that can become a valuable asset in your real estate portfolio.
What is a Fix and Flip House?
Fix and flip houses are real estate in less-than-perfect condition that can be acquired for a price lower than its market value. These are often REO foreclosures or off-market properties that have been neglected by the owner. A true flip has a good return on investment in which you can make a reasonable profit.
- For more information on determining profitability with some commonly used formulas, check our blog on calculating ROI.
They may also be part of a loved one’s acquired estate that has not been maintained. Sometimes, these houses have significant problems such as a poor foundation or outdated electrical systems. Other times, they may just need some aesthetic updates. Overall, there is no absolute rule of whether they will need minimal or extensive renovations.
When a home can’t sell on the open market due to an old roof or another issue that makes it fail inspection, prices need to drop. Instead of selling for top dollar, they seek other methods to offload these less-than-perfect homes, which include lowering the price.
You may see a fix and flip house at an auction, or you may find them on the MLS as an expired listing. The best way to identify and make an offer on a Fix and Flip house is to work with a real estate agent so that you can compare the home’s price with the competing listings market value.
Why Flip Houses with a Real Estate Agent
Hands down, the best way to find a fix and flip house is to work with a licensed real estate agent. This professional has access to the most up-to-date information through the MLS (multiple listing service). Even experienced house flippers can benefit from the sharp eyes (and excellent resources) of a well-connected realtor. Your real estate agent will likely look into these areas:
- Open market listings at less than market value
- Expired Listings
- REO Foreclosure Listings
- Short Sales
- Off-Market “Pocket” Listings from Investors
- Off-Market “For Sale by Owner”(FSBO) Listings
- Local Auction Listings
- Public Records
Though it’s possible to find properties on our own, the information DIY home seekers get is not as up to date compared to the data that an agent gets through the MLS. Also, one can’t beat the advantage of having connections through investors, other agents, and builder partners through a real estate brokerage.
Being able to have the most selection will help you make the most strategic choices. A low home value before renovations and modest repair costs can lead to a favorable profit margin. Let’s look at some of these popular places to find the best flips.
What to Look for when Flipping a House?
When flipping a house, it’s important to find homes that can give you profit after you restore it. The after-repair value (ARV) must be high enough to cover renovation costs, its initial purchase price, and the cost of holding the house while you repair it. Any property taxes, utilities, trash pickup, and other expenses related to owning the house, even if it’s just for a month or two, must not push you over the territory of breaking even or being in the negative. A successful flip makes you money, period.
That being said, here are some things that real estate professionals recommend that you look out for when finding the right property to flip. Here they are:
1. Flawed Open Market Listings
Real estate agents can negotiate a below-market value price on open market listings that have outdated interiors, less-than-perfect interiors, or a house that has a new roof due. As an investor, you may get some deals when you make an offer on a house like this and then negotiate credits. Success with this strategy depends on the condition of the home and the state of the real estate market.
Usually, these houses don’t have significant problems like foundation or plumbing issues (which can save you a lot of headaches), but the owner is aware that the house needs some TLC. The longer the house has been on the market, the more negotiating power you have too, so talk to your real estate agent about your options when you pursue the open market. This kind of property can be a goldmine for a new investor who needs an easy flip.
Note: The longer the house has been on the market, the easier it is to negotiate a lower sale price. A price reduction can also be negotiated after the home inspection in the due diligence period.
2. Foreclosures & Pre-foreclosures
Foreclosures are homes in which the former owner defaulted on the loan. The lien holder is the new owner of the home and typically sells at a discounted rate to recoup the mortgage amount. These homes are some of the best real estate deals you can get. While typical home buyers shy away from them, investors enjoy scooping up foreclosures and pre-foreclosures. Here are a few ways to find them:
- Ask your agent to find REO (real estate-owned) foreclosures on the MLS.
- Go to your county clerk’s office and ask about foreclosures.
- Do a Google search for foreclosed listings.
- Go to bank auctions.
It’s easier to flip foreclosed homes because they are priced under market value and are usually not left vacant for long periods. However, some may need extensive repairs. Cash offers are preferred for these types of distressed properties. Flipping properties like these is not always the easiest for beginners, but an experienced house flipper can spot an REO property that doesn’t have the signs of a “money pit”, such as:
- Poor foundation
- Major pest problem
- Major mold problem
- Extensive flood damage
- Significant vandalism
3. Short Sales
People often confused short sales with foreclosures, but they have some differences. In a short sale, the homeowner can’t keep up with the mortgage but can’t sell the home for a profit. The lender ends up “short” and so they work out a deal where the lender is okay with accepting less than what the borrower owes on the loan post-sale. This usually happens when a borrower’s loan is “upside down” — or when their existing home’s value exceeds its market value.
4. Pocket “Off-Market” Listings
Did you know that according to the National Association of Realtors, 11% of homes are never listed on the MLS? A significant number of homes are sold as off-market properties. Seeking these homes is a necessary part of a house-flipping investment strategy. News of these listings can spread by word of mouth between real estate agents, investors, or other people you know.
As you explore off-market listings, you might find some that are in perfect condition and will be sold for full market price, but there may be others that aren’t being sold on the open market due to some defects like an old roof or needing some interior work.
Off-market listings can also be part of an Investor’s portfolio. If an investor doesn’t want to have an asset in a certain location, they may want to sell their rental quickly and without a lot of back and forth on the open market. Your best chance of finding a flip house is through a real estate agent, so it helps to connect with 1 as you start your search for the best houses to flip.
- Tip: Real estate agents also have access to “coming soon” listings, which test the waters to see how interested the public would be in a certain listing. You might get lucky and catch a good potential flip through this method and get a contract before the house even goes on the market. The only caveat is that if the house is in good condition, you won’t be buying at a discount.
5. For Sale by Owner (FSBO) Homes
For sale by owner houses are simply homes that the owner decides to sell on their own without the representation of a real estate agents. The homeowners that are holding on to these are doing so for a reason. Knowing the primary motivations can help you persuade them to sell to you.
- They want all the sales proceeds and to not pay commission. Your best bet is to offer all cash at a purchase price where they aren’t at a loss, but you aren’t either.
- They don’t want to fix their home to the open market standard. Offer to buy the home without an inspection.
- They want a flexible move. Financially stable real estate investors can offer them a rent-back period.
6. Expired Listings
Expired listings are also part of off-market listings, but they are not purely pocket listings. Why? Because the owner may have given up on selling the property. Getting your hands on an expired listing can be more of a challenge than a coming soon or a foreclosure because it can involve cold calls or some extra persuasion.
If you work with a real estate agent, they may be able to investigate the MLS to find out how long the home was on the market. There may even be a way to ask the former listing agent if there is a chance the home may go back on the market. Who knows? You might get lucky and snag an incredible off-market fixer-upper that you can turn into profit!
7. Wholesalers
Wholesaling is a short-term business strategy in which a wholesaler puts a house under contract and gets an investor to buy it. It is usually a distressed property with great potential for future profit margin after rehab. This is an excellent opportunity for an investor to find a property that an owner wants to sell quickly to avoid a bigger loss like the hard credit hit of a foreclosure.
Flip Houses for a Living
To find houses to flip for your financial or investment needs, it’s better to work with real estate professionals. House flipping can be an excellent short-term investing method that’s perfect for property owners who don’t want to play the long game with buy and hold.
Working with a real estate agent immediately gives you inside connections that will help you succeed in flipping homes. Marketplace Homes agents can advise you step-by-step about how to make an offer and find properties that could sell for below market value.
Contact us today to get the latest scoop on the housing market, how to navigate a landscape of sustained high interest rates, and how to determine ARV by looking at comparable properties in the property’s local real estate market.