Fact: House flipping is tough work. You’ll need plenty of:
- Energy
- Know-how
- Patience
- Risk-tolerance
But if you have these tools in your arsenal, it can be plenty lucrative, especially here in Las Vegas where there are several flip-friendly neighborhoods. In fact, recent data shows 10% of home sales in Vegas were flips—approaching twice the national average.
So, if you’ve got the tools, and you’re thinking about making house flipping part of your investment strategy, there are 7 important rules to keep in mind:
Rule #1 There will be math.
Yes, “location, location, location” is critical. And we’ll get to the “where” of house flipping in a moment, but first you’ll need to commit to filtering every decision at every point in the process through your budget. Yeah, we know: The b-word is a bit of a buzz-kill, but if you don’t keep an eye on your numbers, you’ll find yourself investing a year’s worth of time, energy and aggravation for a return of zero—or worse. And even though there are twice as many flipped houses in Las Vegas, the profit margins for house flips here are slimmer than other metro areas, so keeping your numbers in order is critical.
The good news is that it’s not a guessing game. There actually is a magic formula for getting it right. Expert (read: successful) house flippers bank on The 70% Rule.
This is how it works:
- Carefully estimate the after-repair value (ARV) of the investment property. If you’re not a Realtor, ask one to help you. The ARV is a number you’ll need to hang on to through the whole house flipping process; getting overly optimistic about resale value is a good way to chip away at your profits.
- Calculate 70% of ARV.
- Subtract your costs—improvements, renovations, permits, financing, capital gains tax, and so on.
- Circle the number you came up with, and don’t deviate from it. For example, if you’re looking at a home you think you can get $250,000 for when it’s done, and you estimate it’s going to cost you $30,000 to get it there, your purchase price shouldn’t exceed $145,000. [(250,000 * .7) – 30,000 = 145,000]
Rule # 2 Okay, now let’s talk location.
Here’s the long and short of it: Do your research and take your time. If you’re a Realtor, this may be the easiest part of the process for you. If you’re an investor, team up with a knowledgeable real estate partner who can help you collect key information about areas of town you’re considering. That will include things such as:
- Average home sale price
- Average time to close
- Most popular layouts/features
- Value-adds such as walkability and good schools
If you’re looking at fixer-uppers, make sure you’re looking at properties that won’t have ARVs the neighborhood won’t tolerate. (See Rule #1.)
Rule #3 Take on the heavy lifting
This may seem a bit obvious, but if you want to maximize profits, you’ll need to do the bulk of the house flipping work yourself. Rather than paying someone else to install those new kitchen cabinets, do it yourself. Lay your own laminate. Hang your own light fixtures. Yes, it takes time, but if you want to make money as a house flipper, sweat equity’s the way to go.
Rule #4 Control your costs by making good, buyer-oriented decisions.
Once you’ve purchased a property to flip, be smart about making improvements that will matter to potential buyers. Yes, kitchens, bathrooms, and curb appeal matter. But so do things like upgraded plumbing and electrical systems. Think about where you’re likely to get the most bang for you buck.
Rule #5 Take the middle ground
Whether you’re an investor or Realtor, you may be tempted to imagine yourself living in the house you’re flipping. Don’t do that. If you do, you’ll choose Best when Better would be perfectly acceptable. That doesn’t mean you should choose the cheapest products, either; homebuyers won’t settle for “Okay” in today’s market.
Rule #6 Take good notes.
It’s a good idea to keep impeccable records of the improvements you’ve made so you can share them with potential buyers. Take before- and after-photos. Keep documentation of roof repairs and window replacements, and don’t forget about small but meaningful changes like garage door openers and upgraded lighting.
Rule #7 Don’t be greedy.
When it comes time to sell your flip, keep a close eye on the market. If prices seem to be slipping, it may be better to sell for a little less than what you’d hoped for, rather than sitting on a property for months and months.
The bottom line is that you can make money flipping houses, particularly if you approach the process with a clear head, realistic expectations, and a carefully considered budget.
Read House Flipping 201: How to Be a Flipping Rock Star to find out the 3 questions you need to ask in order to maximize your investment profits now!
Let us know when you’re ready to start searching for the perfect house to flip! Vegas One Realty agents can help you select the best neighborhoods and get the best price for the house you choose, so that you can maximize profits.
