Where are the Best Places to Flip and Grow Rich in America?
In part 1 of our new series, we'll look at this question a few different ways and research ideal locations in the U.S. for flipping real estate. We'll examine some basic assumptions, flip scenarios, actual sales in top U.S. cities and perform some paper analysis of the flip potential. In the end, we should have a good list of cities with high potential for the next great flip.
A flip can vary by several factors including the person doing the flip, investment potential of the property, and the local market. So before we begin, we need to establish these basic assumptions and criteria. Applying this analysis to your own market or location simply means adjusting the assumptions to match your own.
Personal Ability: How Many Houses Can We Flip?
First things first, we need to assume some flipping ability. Not superhuman ability, just the average flipper. Let's assume this is a part time job, and we will be flipping a minimum of four houses a year.
How many houses do you intend to flip in a year? What is the minimum you need to stay in business?
Investment Potential: How much profit?
Using the latest numbers and market conditions, ideal flips are those which net you at least 10% profit, move quickly, and list for under $450,000. Considering you can invest in Wall Street with anywhere between 5 to 10% a year, I'd say that's a good starting point. So our target for analysis will use numbers close to these. As we refine the formula, we can begin to look at how it fits reality.
How much would you expect to earn in a year on your initial investment? Would you take the risk for anything less than 10%?
Local Market: Can we flip x number of houses for $y number of dollars in this location?
Bottom line is we need to find popular cities attracting a high number of home buyers with money to spend and good credit. These cities need to have median home prices not to exceed $500,000. Median incomes high enough to afford a $400,000 loan assuming a standard 20% of $100,000 down. This will give us our upper limits, anything below these numbers should be relatively safe, and the driving factors will be profit margin.
Say for example, your first purchase for the year is a $400,000 house, you plan to sell for $500,000. You expect $50,000 in renovations, marketing, and other expenses. You get the property with $40,000 (10% down) and you have $50,000 for renovations (with an extra $10,000 safety net for construction mishaps, termites, or other risks).
Just to break even, we have to flip our new property for at least $500,000. Where did our profit go? We'll we didn't factor it into the final or purchase price. Using our 10% rule, we need to earn at least $10,000 from an investment perspective.
How much time did you spend working on the flip? How much do you expect to earn on a single flip?
Join us next week for "Best Places to Flip and Grow Rich - Part 2" when we look at how much you should expect to earn in a year, and continue with our analysis of the best places to flip in America.
In part 1 of our new series, we'll look at this question a few different ways and research ideal locations in the U.S. for flipping real estate. We'll examine some basic assumptions, flip scenarios, actual sales in top U.S. cities and perform some paper analysis of the flip potential. In the end, we should have a good list of cities with high potential for the next great flip.
A flip can vary by several factors including the person doing the flip, investment potential of the property, and the local market. So before we begin, we need to establish these basic assumptions and criteria. Applying this analysis to your own market or location simply means adjusting the assumptions to match your own.
Personal Ability: How Many Houses Can We Flip?
First things first, we need to assume some flipping ability. Not superhuman ability, just the average flipper. Let's assume this is a part time job, and we will be flipping a minimum of four houses a year.
How many houses do you intend to flip in a year? What is the minimum you need to stay in business?
Investment Potential: How much profit?
Using the latest numbers and market conditions, ideal flips are those which net you at least 10% profit, move quickly, and list for under $450,000. Considering you can invest in Wall Street with anywhere between 5 to 10% a year, I'd say that's a good starting point. So our target for analysis will use numbers close to these. As we refine the formula, we can begin to look at how it fits reality.
How much would you expect to earn in a year on your initial investment? Would you take the risk for anything less than 10%?
Local Market: Can we flip x number of houses for $y number of dollars in this location?
Bottom line is we need to find popular cities attracting a high number of home buyers with money to spend and good credit. These cities need to have median home prices not to exceed $500,000. Median incomes high enough to afford a $400,000 loan assuming a standard 20% of $100,000 down. This will give us our upper limits, anything below these numbers should be relatively safe, and the driving factors will be profit margin.
Say for example, your first purchase for the year is a $400,000 house, you plan to sell for $500,000. You expect $50,000 in renovations, marketing, and other expenses. You get the property with $40,000 (10% down) and you have $50,000 for renovations (with an extra $10,000 safety net for construction mishaps, termites, or other risks).
Just to break even, we have to flip our new property for at least $500,000. Where did our profit go? We'll we didn't factor it into the final or purchase price. Using our 10% rule, we need to earn at least $10,000 from an investment perspective.
How much time did you spend working on the flip? How much do you expect to earn on a single flip?
Join us next week for "Best Places to Flip and Grow Rich - Part 2" when we look at how much you should expect to earn in a year, and continue with our analysis of the best places to flip in America.