One of the more popular ways to make money in the real estate market is by flipping houses. On the face of it, the business seems quite simple: real estate investors buy fixer-uppers for under market rates and rehab them to generate quick profits.
It may sound like a trivial process, but it is trickier than it appears. Flipping houses is a skill that requires an understanding of the local market, home repair, sales, and more. Here’s what you need to know if you’re considering flipping a house in the Connecticut real estate market.
2019 Connecticut Housing Market Analysis
The prices of homes in Connecticut rose by 2.4% in the last year. That’s a good sign for those looking to invest in the market.
The present median price for a home in Connecticut is $243,700. That’s the median value from sales aggregated from across the state, but what you can get on a house will vary significantly depending on your specific city and neighborhood.
If you’re looking to flip a home in Stamford, for example, you can expect to make a lot higher than the state median price. The city is among the most expensive in Connecticut and a median home is valued at $516,000 this year.
Houses in Bristol, on the other hand, are a lot more modestly priced. The median value of a Bristol home is $190,500 in 2019, making it more affordable than the average house in the state.
It’s evident that your expectations while flipping houses need to be dictated by metrics drawn from the local market. The best way to maximize profits is by hiring a local real estate agent. Having access to the kind of local historical data and market intelligence that agents possess is invaluable in the flipping business.
How to Tell if a Connecticut Property is a Good Investment
Success with flipping houses comes down to the ability to see potential quickly. There are a few things to look out for to make sure you’re making a good investment.
As we’ve seen already, location has a big part to play in the way houses in Connecticut are appraised. Neighborhoods with high curb appeal are always a good choice. Well-maintained front yards and even sidewalks are a good starting point.
Within those neighborhoods, keep an eye out for properties that may sell for under market value. This could be due to the need for repairs or poor maintenance practices. These conditions are factored into a metric known as After Repaired Value (ARV). It represents the extent to which a property can appreciate in value after requisite repairs have been made.
There are a few things to consider when determining the ARV of a property. Prime among those is the capital it will take to rehab the house to a state where it is appealing to buyers in the area. Once you have that number, a comparative market analysis can be used to project the selling price of the property. The difference between the value of repairs and ARV will give you an idea of how good an investment a particular house is.
In addition to that, it helps to track local market trends. For example, the sale of single-family homes in Connecticut fell by 3.1% in October 2018. That was the third consecutive month that sales of that particular kind of housing unit declined in the state. So if you were looking to make a quick flip in early 2019, those numbers would have factored into the kind of property you invested in.
It takes extensive knowledge of the local market as well as aggregating recent statistics to determine whether a house can be flipped profitably. Consulting a real estate agent in the area can help flippers get the information they require.
How to Turn a Profit When Flipping a Connecticut House
We’ve seen that ARV is a good metric to use when determining whether you’re making a profitable investment. Let’s take a look at how you can use it to calculate how much you should pay for a house.
The general rule of thumb in flipping is that the amount you pay for a house should not exceed 70% of its ARV after deducting the costs of repairs. This is called the 70% rule and is a dependable way to chart your expenses.
Let’s say the ARV of a house you’re flipping is $131,900, which is the median value of a house in Hartford. Assume that you’re going to spend $20,000 on repairs.
70% of the ARV ($131,900) is $92,330. On deducting the $20,000 you will spend on rehabbing the property, we arrive at $72,330. That’s the upper limit of how much you should pay for a house that has an ARV of $131,900.
There are a few more factors to take into account to increase your chances of flipping a house for a profit. The average time to flip in your area is an important one. It provides an estimate of how long the project is likely to take overall, leaving you to decide whether it’s a good investment of time and effort on your part.
Paying Cash vs. Taking Out a Loan
It’s a good idea to buy a house you plan on flipping with cash, especially if you’re new to the business. Choosing to take on debt, instead, can lead to paying interest for longer than you expect.
Sellers may then feel the need to inflate the asking price to unrealistic levels as a means to account for the money paid in the form of interest. That’s now the ideal way to go about flipping a house.
Cash-only flippers, on the other hand, don’t subject themselves to those pressures. They can ride out lean periods without getting desperate since the house has already been paid for.
All that said, it is possible for flippers to obtain financing for their investment properties. Most banks will require that you have a strong credit history before approving a loan.
Traditional lenders will often back away if the house being purchased isn’t in great condition. Having other assets that can serve as collateral can help you qualify for a loan in such cases. If you have equity in another property, you can use a home equity line of credit to raise capital for the investment.
5 Best Cities in Connecticut for House Flippers in 2019
Bridgeport is generally known for the multi-million dollar mansions it boasts in Fairfield County. But there’s more to the city’s housing market than that, including the urban area where families can snag houses for well below median prices.
The Bloomfield area has one of the highest median household incomes in the state. The north of the city has an abundance of farmland and affordable properties that are sure to generate profits for enterprising flippers.
The median sale price of homes in Enfield, Connecticut is $182,700, making it one of the more affordable cities in the state. Enfield has a thriving job market, including employers like Lego, which has a main office in the city.
Stratford is extremely well connected, housing an airport and a train station within its limits. It also has a number of beaches in its vicinity and is located by the Housatonic River, making it an attractive destination for nature lovers.
West Haven’s economy has grown thanks to its status as an important center for industry and the shipping business. The median value of a home in the city is $183,200 and is projected to grow 4.2% inside of a year.
Next Steps for Connecticut House Flippers
Connecticut offers a wealth of opportunities to those looking to make money from flipping houses. Hiring a real estate agent in the area can help you make the right calls about which properties hold the greatest potential to generate profits.
Clever Partner Agents work for some of the most reputed real estate companies in the country. Our agents conduct a comparative market analysis for each house they work on so you know exactly how much you can expect from a flip. They then craft a listing and market your house so you can derive the highest possible profits for a house in your area.
Visit our website to get connected to a top real estate agent in your city.