Flipping houses can be a lucrative investment opportunity and is one that may even lead to a career for some. The process begins by purchasing a home for bottom dollar, making necessary repairs, and then placing it back on the market.
It sounds like easy money, right? In reality, a house flipping scenario introduces the risk of financial devastation if any of the many involved aspects go wrong. However, with the right research and assistance from a top-selling realtor who knows the local market, flipping houses can be quite profitable.
Before you begin making offers on properties to flip, you should understand the ins and outs of the Alaskan market and how an agent can make the process less of a risk. Learning to invest requires plenty of research, timing, and advice from an expert in the real estate industry.
2019 Alaska Housing Market Analysis
When making a good decision on an investment project, knowing the real estate market in the area is a great resource. In Alaska, the median home values have declined 0.3% since last year and experts are expecting it to fall another 2.4% by 2020.
As a whole, the state’s average home is valued at $306,100 and properties remain on the market for an average of 122 days. The median listing price is generously lower at $284,900.
The Alaskan territory is vast, and home prices throughout can vary drastically. For instance, in Seward, you should expect property values to average at $226,600 and in the capital city, Juneau, median prices are $383,800. Fairbanks is a popular residential city with prices around $245,400, whereas homes in the vacation destination of Anchorage average at $319,300.
Alaska offers something for every house flipper, whether you’re looking to get started with a small investment, or you’re experienced and prepared to take a big swing at a larger purchase. No matter your experience level, buying property to flip is a safer venture under the guiding hand of an agent who is knowledgeable about the area you’re targeting.
How to Tell if an Alaska Property is a Good Investment
Understanding what you can expect to pay for a property in different regions of Alaska is important, but far from the only factor you should consider when flipping. For investors to receive the most ROI, you must also assess a home’s current condition, what cost it will take to cover renovations, its location, and the current market there.
An aspect many overlook is the difference between an appraised price and an actual listing price. An appraiser is effective when determining the value of a structure by analyzing its overall condition, square footage, and amenities like fireplaces and finishing details.
While this may reveal a home’s fair market value, what people in the region willing to spend can fluctuate greatly. Working with a professional agent gives you a perspective of what comparable properties are selling for and how current economic conditions are affecting the market.
When you know these factors, you can make an informed decision on an investment property by evaluating a cost vs. profit scenario. To keep renovation prices lower, you should target homes that already have features Alaskan home buyers have on their house hunting checklist. Here are a few to keep an eye out for.
- Newer Roof - Plain and simple — it’s wet in Alaska. Accumulating snowfall in the winter and heavy rain in warmer conditions can take a brutal toll on a property’s roof.
- Effective Heating - Buying a home with a new heating system can be a big burden off your budget, as the average installation of a new unit in Anchorage is over $8,000.
- Earthquake Resistance - The location of Alaska makes it a prime region for seismic activity. Homes with shatter-resistant windows, safe rooms, and secured furniture are must-have safety features.
A licensed agent will take advantage of their professional network and MLS resources to track down homes that meet your specifications. Their expertise streamlines the process and helps the flipping process begin quicker than analyzing homes alone.
How to Turn a Profit When Flipping an Alaskan House
Turning a profit in house flipping can be tricky, especially as you get started. It’s crucial to find a balance that leaves room for renovations after your initial offer. Luckily, there is a rule that successful flippers follow — the 70% rule.
The rule advises flippers to avoid paying over 70% of a home’s after repair value (ARV) minus the cost of repairs.
For example, the median listing price in Anchorage is $315,000. Now, consider this property will require $50,000 worth of repairs to be presentable. To follow the rule, multiply $315,000 by 0.70 to get $220,500, now deduct the cost of repairs and the result is $170,500. This is the absolute highest price you should pay.
For this to work in your favor, a partnership with an expert negotiator is an effective resource.
When evaluating necessary repairs you should analyze the condition of important factors that can degrade a property’s value. These include the foundation’s integrity, condition of the roof and siding, and obvious signs of water damage.
You will also want to consider how long the renovations will take to complete. A good rule of thumb is that a house flip should typically be a 90-day turnaround. Of course, the extent of repairs can cause this timeline to vary so make sure you’re prepared financially if the property is in your hands longer than expected.
Paying Cash vs. Taking Out a Loan
When possible, paying cash for properties to flip is the best way to fund a project. It’s the safest way to avoid losing profits from interest or dropping your asking price to rush the sale in a slow market. However, it’s not always feasible, especially as a property flipper gets started. Fortunately, there are several avenues an investor can seek for fair funding.
Popular fix and flip funding strays from traditional real estate loans, as 15- and 30-year terms don’t fit the needs of a short-term venture. Instead, many flippers take advantage of equity from their own home.
When using a home equity loan or home equity line of credit, you gain access to funding through a lump sum of money (HEL) or a line of credit (HELOC). The amount of equity you have to borrow is the difference between the market value of your home and the remaining mortgage balance. To qualify, most lenders require you to have at least 20% of equity built up.
When deciding how much to borrow, consider the home in Anchorage from the previous scenario. After using the 70% rule, you wind up financing $170,500 for the property and another $50,000 to make necessary renovations. You’re now instantly in debt $220,500 but plan to list near the median value of $315,000. After closing costs, you’re on pace for a sizeable return.
If it was that easy — everyone would do it. However, if you fail to research the region and its current market trends, it’s possible the listing price is out of the ballpark for home buyers. Imagine a few months down the road, after a few offers, you find yourself cutting the asking price, paying high-interest rates, and may even be on the hook for unexpected repairs that arise while it sits on the market.
When it is all said and done, an uneducated house flipping venture can squeeze every bit of profit you expected and even have you digging deeper into your pockets to meet a lender’s requirements. An all-cash journey is the safer route as you can take your time with the sale when the market is cold and avoid rushing into a decision that may leave you scrambling to unload a property.
The best way to navigate the tricky balance of pricing, marketing, and targeting a location is with the help of an expert agent. A flipping experience will be beneficial with the right strategy and guidance from someone who knows the industry.
5 Best Cities in Alaska for House Flippers in 2019
To make an impact when flipping houses in Alaska, knowing where the hottest areas for real estate investing is crucial. Here are five popular cities in the state that are experiencing a steady rise in market trends and offer attractive incentives for investors and potential buyers.
This popular city features a median home value of $263,693 and is mostly made up of single-family detached homes built from 1970 to 1999. Good news for investors is vacant housing accounts for 11.64% of the available housing stock.
The Halibut Capital of the world attracts retirees, vacation property buyers, and young professionals to an area where homes average at $295,275. Its property appreciation rate is higher than 80% of other cities and towns in Alaska.
On the higher end of home values in the state, Juneau properties average at $364,295 and remain on the market for an estimated 88 days. The area boasts one of the highest education levels in the country, which means the median household income is well above the national average, at $90,749.
Kodiak will continue to be a safe bet for property flippers to invest in throughout Alaska, with median home values of $311,404 and an appreciation growth rate higher than 70% of the rest of the state. The area features many occupations to keep the economy healthy like commercial fishing and a large military presence.
The most populated city in Alaska has a median home value of $330,900 and an average listing price of $315,000. While values in Anchorage have slowly declined over the last year, experts forecast it to make a big return in 2021, making this the perfect time to get a great deal on a property and receive a healthy ROI when the market bounces back.
Next Steps for Alaska House Flippers
The journey of house flipping shouldn’t be traveled without the aide of an expert. Whether you’re planning to break into the industry or are an experienced veteran, the knowledge of local markets and how to sell effectively is crucial.
When it comes time to sell, Clever Partner Agents work for a fraction of the typical commission rate, helping you maintain the highest margin on your flip while also bringing in a great price and ensuring the sale goes through without a hitch.
If you’re ready to see what an agent can do for you, fill out this simple online form to connect with a knowledgeable expert.