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Flipping Property: What Makes a Good Property to Flip?

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Flipping property – whether a rental property or an owner-occupied home – is more difficult than it used to be but can still be fruitful if you know what you are doing.  As the old saying goes, you make money in real estate when you buy, NOT when you sell (thank you, Robert Kiyosaki).  As such, in order to make money flipping property, you must make sure you target houses that are appropriate for this strategy.

Of course, the best flipper property will be one that is ugly and has a fair amount of cosmetic damage.  Generally speaking, you’ll run into less competition for ugly houses because prospective homeowners will usually not be interested in a fixer upper.  This eliminates a large segment of the buying market and pretty much limits your competition to fellow investors.  Additionally, homes with cosmetic deficiencies are usually priced at a discount, yet the repairs are typically not all that expensive.  Conversely, you’ll want to avoid houses with structural damage, as this type of damage is much more difficult and expensive to repair, which makes the project riskier.

Another obvious thing to look for is a property in a decent location.  There’s a bit of a tradeoff here so you’ll have to run the numbers to evaluate each deal; specifically, houses in better areas will sell more quickly but your acquisition cost will be higher.  But all else being equal, the better the area, the easier it will be to execute your strategy.  At a minimum, stay out of the hood.

The third thing to look for is a property which has a strange or outdated floor plan.  For example, many older homes have a tight floor plan with lots of hallways or rooms, or might have an overly small kitchen or only 1 bathroom when the home should have 2.  Houses with these characteristics are in a state of “economic obsolescence” and will therefore have discounted property prices.  In these examples, you could break down a few walls to create a trendier open floor plan, or enlarge the kitchen or add another bathroom.  All of these mini projects will provide a premium for your time spent, which means that you should be able to make a nice little profit when you flip.

Finally, houses with basements, private yards, and multiple bedrooms will always hold their value better than homes without these features.  So the ideal flipper would be a 3-4 bedroom house, with a private yard & basement and an ugly and outdated floor plan with some cosmetic damage, in a decent neighborhood.  If you can find a house like this, and you can negotiate a nice discount relative to the list price, you’ve got yourself a winner!

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