More and more, the fix-and-flip real estate investment approach is becoming the go-to method for turning a profit in the industry—with the year-end 2019 U.S. Home Flipping Report indicating that 245,864 single family homes and condos across the country were flipped in 2019, up 2 percent from 2018 to the highest point since 2006.
While fix-and-flips are undoubtedly in-demand in today’s market, some investors are finding it challenging to offload their refurbished properties at a price point that will yield a favorable return on investment. The data backs up these claims—with the aforementioned U.S. Home Flipping Report showing that homes flipped in 2019 typically generated a gross profit of $62,900 nationwide (the difference between the median sales price and the median paid by investors), a decrease of 3.2 percent from $65,000 in 2018 and a 6 percent downturn from the post-recession spike of $66,899 in 2017.
Lingering properties on the market equate to lower sales prices. For investors experiencing such difficulties, it may be time to revamp their sales approach. It can be challenging to decide where to begin overhauling your strategy, so here are a few tried-and-true tips to increase the chances of your fix-and-flip property being snapped up immediately upon hitting the market.
Set the Stage…Literally
If the property has been completely rehabbed and is ready for the sales sign to be pitched out front, ensure you’ve devoted the time and effort to correctly stage the home. When it comes to staging, aesthetics is everything. Your main focus should be to accentuate the most sought-after features of the house while attempting to downplay any negative aspects of the property. For example, consider using flattering lighting throughout the house to brighten up dark corners and create playful shadows or incorporate texture through textiles that entice touching by potential buyers, which promotes a personal connection to a space. Even if the property has some quirky architectural aspects, it’s best to showcase them rather than try to cover them up—after all, a house’s personality is an element of its overall charm and appeal. Imagine there’s seemingly wasted space underneath a staircase. Consider transforming it into a reading nook. This preparation will help you make the most of showings.
Settle on an Asking Price
Deciding how much to ask for your rehab project can be a tricky topic—as asking too much can mean your property will be stuck on the market indefinitely and asking too little risks, not making a profit on the transaction. A key tool used by many flippers is what is called finding the “ARV” or “After Repaired Value”. It’s basically what the home will be worth after repairs and upgrades have been completed. After you know the amount people are willing to pay for your project, you can then determine all your other expenses and figure out the ideal place to start to turn a respectable profit. If you don’t know your ARV then you have no reference point. The first step in determining ARV is to look at comparable or “comps” which are recently sold properties that are similar to your subject property and located in the same vicinity. Next, you will need to estimate the cost of repairs and account for closing, holding, and financing expenses. After calculating all of these variables, you are then ready to determine your selling price. While there are a number of formulas utilized in the industry, one of the most commonly implemented is: (ARV) – (Repair Costs) – (Closing & Holding Costs) – (Desired Profit) = Offer Price.
Team Up with an Agent
Having a trusted and experienced realtor with a proven track record of selling properties quickly in the local market is a priceless commodity for any real estate investor—particularly those interested in focusing on fix and flip projects. They’ll have the skills and know-how to walk you through the selling timeline step-by-step and assist you in making sure there are no overlooked details in preparing your property for the market. Resist the temptation to go with the first realtor you see on a quick internet search. Putting in the legwork to compare agents and find one with the ideal profile will pay dividends in the long run.
Selling Your Flipped Property in the Summer
Summer homebuyers are usually eager to get their families settled in a new location prior to the beginning of a new school year—which is great news for investors looking to offload rehabbed properties. The extra hours of daylight also work in your favor as there is more time during the day for potential buyers to view the property in ideal conditions. Additionally, a significant number of summer purchasers could already be months into their new home search and just haven’t located the perfect property yet, meaning they have a sense of urgency when it comes to sealing the deal. Be sure that your property is ready to show in the summer—water the lawn more often that you usually wood and keep the air conditioning running to maintain a cool and comfortable environment for walkthroughs.