Things to know about flipping houses

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With sellers seeing the biggest profits since 2007, now is the perfect time to invest in real estate, especially flipping houses. Homeowners who sold in 2017 saw an average home price gain since purchase of $47,500. That’s up from an average home price gain since purchase of $38,206 in 2016.

Breaking into real estate investment can seem daunting at first and new investors often get discouraged because of a lack of inventory. Many feel their area is too small to flip houses, especially in the Midcoast region. The three best places to search for potential flips are Bank Owned/ REO Properties, HUD/VA Properties, and Off-Market Distressed Properties.

Bank Owned/REO Properties: Banks aren’t in the business of owning real estate. When they do end up with a property, they have carrying costs each month for any house in their inventory. Carrying costs include property tax, insurance, and maintenance, such as landscaping and/or snowplowing services. There is also the added risk that squatters will vandalize a property.

Banks further lose out because an unsold house represents money they could use to fund other interest earning loans. All of these factors create opportunity to purchase bank-owned properties at a significant discount.

HUD/VA Properties: HUD and VA Homes are also referred to as government foreclosures. A HUD property is a house with an FHA-backed mortgage that went into foreclosure. A home with a VA loan that went into foreclosure is a VA property. HUD and VA properties can often be purchased for below market value.

Off-Market Distressed Properties: These are homeowners who may need to sell quickly. One example is a property where back taxes are owed. Homeowners who default on property taxes find themselves in a precarious situation. They often must sell quickly, even if it means accepting a low offer.

Once the perfect property has been chosen, it’s important to follow five simple rules in order to make a profit:

Stick to the numbers: Know what ARV means. ARV stands for the After Repair Value of the property. It’s the amount the house or property will sell for after it’s rehabbed and repaired.

Know the local market: It doesn’t matter what they are doing on HGTV, its vital to know what’s happening in the town, city, area, etc. where the property is. Market trends can shift very quickly, so be prepared to adapt when necessary.

Know the prospective buyers: Make sure to know what types of buyers are in the area. Rehab the house with the types of people who will be living there in mind. Personal preference doesn’t matter — it matters what prospective buyers will like. Remember this: There’s no magic bullet or proven formula that works every time.

Show off the rehab: Make a list of the repairs and upgrades and let the buyers, real estate agents, home inspectors, and appraisers see it. Show them every system that was replaced or added on. Provide them with warranties on the repairs. Let the buyer know — they will give them peace of mind.

Don’t get greedy: Do not overprice the property — it won’t sell and holding onto it and paying for it longer will eat away at potential profits. It’s tempting to overvalue the home. Every neighborhood has a general price point, and it’s important to stay within it. Underpricing slightly could result in multiple competing offers and potentially bubble the price above market value.

No matter what, let wisdom and common sense be the guides. A great resource to learn more about flipping residential homes is “Flip: How to Find, Fix, and Sell Houses for Profit,” a book by Rick Villani and Clay Davis.

There is lots of potential success to be found in flipping houses — make sure to know the numbers and to enlist the help of a trusted real estate agent.