If you've never heard of flipping houses, it's when investors will purchase a house in need of renovations or major upgrades and will turn around and sell the home for a profit once it's the work is finished. What makes a house a “flip” is when you buy it with the intention of reselling in a short amount of time.
The typical time that it takes from buying the home, flipping it, and selling it is usually as little as a few months or can be as long as a year. Investors will like to try to complete this entire process as quick as possible to avoid ending up with a lower ROI (return on investment). Here are just a few of the considerations you need to take into account if you're thinking about investing in a flip house.
2019 Florida Housing Market Analysis
In Florida, the average home value is $233,700. Home values in Florida have gone up 6.3% over the past year, and it's predicted they are expected to rise another 3.6% in the next year. The median price of homes currently listed is $295,000, which leaves room for investors to make a decent property off a flip.
Some of the cities in Florida vary greatly in price so you'll need to take that into consideration as well. For example, in Naples Florida, the median home value is $329,100 while in Pensacola, homes are valued around $132,100.
It's always recommended that would-be house flippers partner with an experienced, local agent who knows the market inside and out. They will have knowledge in all areas throughout the state and which ones will prove to be the most profitable.
How to Tell if a Florida Property is a Good Investment
When you're looking for an investment property, there are some key considerations that need to go into assessing a prospective investment. To start, you'll want to look find the cheapest house possible in a great neighborhood. Some of the best cities in Florida are The Crossings, Naples, and St. Petersburg. They have thriving economies, a wide array of activities, and draw in many vacationers throughout the year. Qualities like these are what will make your property thrive in the market.
One of the other important factors to take into account is whether or not the property you're buying is in a major hurricane area. This will mean seeing if it's a flood zone and is prone to high wind destruction. Florida is known for being the hot spot for hurricanes, but some areas see less destruction than others most years.
Also, most investors will recommend following the 1% rule investment strategy, which is you should be able to rent the house out for at least 1% of the purchase price. You should also check the county appraisal value to determine if you will be making a profit off the home. This information is easily accessible on the county appraisal district website.
How to Turn a Profit When Flipping a Florida House
To ensure that your investment property turns a profit, you'll want to follow a few general guidelines. The first thing you'll want to do is make sure your finances are in check. Having great will come in handy if you're going to be taking out a loan if you don't have the upfront cash for all the expenses associated with buying a house.
One of the most important rules is to follow the 70% rule. This rule states that investors should pay no more than 70% of the after repair value (ARV) of a property minus the cost of the repairs needed. For example, if a house's ARV is $200,000 and needs $40,000 in repairs, you should not pay more than $100,000 for the house.
You will also want to avoid racking up your credit cards by saving up enough cash before starting your project. Most lenders require a down payment of around 20-25% and in cases like these, paying those down payments will save you a lot of money. Flipping houses can turn a profit, but you also want to make sure you are also making smart financial decisions.
Another important factor for making a profit from your flip is picking a house in the right location. Location is known to be one of the key qualities people look for when buying a house. Are there great schools and activities for families? Will they have to worry about crime rates if they live close to a large city? Investors will always stress that it's important to invest in the worst house in the best neighborhood.
Paying Cash vs. Taking Out a Loan
There are many different options you can choose when deciding how to finance your flip. However, some of them come with disadvantages and it's important to do proper research before choosing which financing option is best for you.
If you don't have enough of the upfront cash saved up, you will most likely need to take out a loan. The problem with this method is that typically a traditional home loan is not going to be the best option for your new flip project. These types of loans take longer to close and you will still need to pay closing costs even if they advertise having low fees and interest rates.
One of the more frequent issues investors who use loans run into is not getting approved quick enough. Lenders always perform an extensive check on your finances and if anything negative stands out to them, this could further delay the loan process. This process can be especially frustrating if you are planning on buying a foreclosure or short sale home.
A safer option is to save up and pay cash so you can avoid paying interest fees during the renovation process and wait out the market until you can sell for a higher amount. Let's take a look at an example of what can happen if you take out a loan to fund your flip. Typically, you will need to take into account some unexpected repairs and possible delays that make the project take longer than expected.
Selling Price: $200,000
- Purchase Loan: $150,0000
- Renovation Loan: $30,000
- Estimated Interest Paid Over Six Months: $2,240
- Repairs: $2,000
- Closing Costs: $15,000
Your Profit: $760
As we can see, a profit of $760 is not going to be worth the long months of hard work. However, as long as you understand the potential financial implications of home loans and you properly finance during the flipping process, home loans can be a great tool to use to get into the house flipping industry. Your main goal should be to make sure you are getting a profitable ROI (return on investment).
5 Best Cities in Florida for House Flippers in 2019
Once you know how you plan to finance your flip, it's time to find the best cities in Florida that will bring you a higher ROI (return on investment).
In Naples, the median home value is $323,700. They have seen a 2.4% rise in home values over the last year and are expecting a 0.9% in the next year. The median price of homes currently listed in Naples is $399,999 while the median price of homes that sold is $321,700. Naples is one of many cities in Florida that attracts visitors all year round to enjoy its beautiful weather.
Hialeah median home values are currently $288,400 and have gone up 9.8% over the past year. They are expected to rise another 5% in the next year, which is very promising for investors. The median price of homes currently listed in Hialeah is $324,450 while the median price of homes that sold is $245,700. The average home is listed for under 100 days before it is sold, which is a great scale for would-be flippers.
In Saint Petersburg, the median home value is $218,500. Saint Petersburg home values have gone up 5.6% over the last year and will be expected to rise by 2.8% within the next year. The median price of homes currently listed in Saint Petersburg is $279,900 while the median price of homes that sold is $216,400. Homes in Saint Petersburg are only on the market for around 87 days and have been as low as 66 days.
Right now the market in Tallahassee is a hot seller's market. The median home value is $183,800. Tallahassee home values have gone up 7.5% over the past year and it's predicted they will rise 3.8% within the next year. The median price of homes currently listed in Tallahassee is $219,900 while the median price of homes that sold is $189,700.
Pensacola is another hot seller's market in Florida. The median home value is $145,100 and has gone up significantly, roughly 10.9%, in the past year. They are expected to rise by 7.1% in the next year. The median price of homes currently listed in Pensacola is $229,953 while the median price of homes that sold is $164,500.
Next Steps for Florida House Flippers
Whether you are just getting started or have been flipping houses for a while, we always recommend that you work with an experienced agent. Clever can help find you one that fits exactly what you are looking for. When it comes time to sell your new flip, Clever Partner Agents work for a fraction of the typical commission rate, helping you maintain the highest possible margin on your flip while also bringing in a great price and ensuring the sale goes through without a hitch.