If you’re interested in getting involved in real estate investments, you may be thinking about flipping homes. Iowa can be a great place to flip homes if you do your research and know the best areas to focus on. Here’s what you need to know!
Buying a home, fixing it up, and selling it for a profit isn’t easy — no matter how the TV shows make it look. There always seem to be more problems than you expected, and it’s sometimes challenging to make sure you don’t make the home too fancy (or too plain) for the surrounding neighborhood.
Of course, if you do real estate investments well, you can buy a home and resell it and make a great profit quickly. If you don’t, however, it’s easy for even one bad deal to put you in serious financial trouble.
Here are just a few of the things you need to consider if you want to flip houses in Iowa.
2019 Iowa Housing Market Analysis
Iowa is a rural state with a few cities separated by miles and miles of farms and small towns. That doesn’t mean that it’s not a good investment market though — in fact, home prices are rising in many areas.
Overall, Iowa is a seller’s market, as is much of the U.S. right now. Iowa’s real estate prices have risen 3.9% in the last year, and are expected to rise 2.7% in the next year.
However, individual markets can be much hotter. For instance, Marion has a median home value of $172,300 and has risen 5.1% in the last year. On the other hand, Muscatine has a median home value of only $131,600 and has grown 1.7% in the last year.
It’s important to work with a professional buyer’s agent when you’re looking for a good investment property. An experienced local agent will be able to point you to the right areas and help you buy at the right time for a great price.
How to Tell if an Iowa Property is a Good Investment
How do you tell if an Iowa property is a good investment? The first thing you need is an amazing location. You can change everything about a home except for the location.
Find an area that is growing and has strong job prospects. You’ll also want to check out the average income of those in the area to make sure they can afford your flip. If the majority of people who live in the area rent instead of own, you may have a hard time selling.
Look for great neighborhoods connected to excellent schools, and try to find the smallest house in that area. You’ll be able to sell it for lower than the highest price in the neighborhood, so you’ll sell more quickly.
Stay away from any property that’s "unique" or "one-of-a-kind." It will take a lot more work to renovate and sell, which means it will cost more money. Make sure the neighbors don’t have something that will scare buyers away, like bees, chickens, or a dilapidated mess of a yard.
Finally, make sure you work with a realtor who can help you take all costs into account and have a realistic understanding of how much it will sell for.
How to Turn a Profit When Flipping an Iowa House
Knowing how to have a proper return on investment (ROI) is essential if you’re going to make money by flipping homes. You’re buying a home and putting tens of thousands of dollars into renovating.
If no one buys it, you’re stuck with it. You have to pay the mortgage, insurance, and all the costs, all while hoping that a buyer will appear.
You’ll need to start by deciding how you’re going to finance the home. Do you have cash, can you get a mortgage, or will you need a hard cash loan?
Next, follow the 70% rule. Investors should aim to pay no more than 70% of the after-repair value (ARV), minus the cost of repairs. So if you have a home in Marion that’s expected to sell for the median price, or $172,300, and the repairs are $20,000, you’d want to pay no more than $100,610.
Finally, think about how long it will take to flip the home. On average, investors spend 180 days to complete the flip. You’ll need to be able to cover all expenses, the repairs you know about, and any you discover after you get started.
Paying Cash Vs. Taking Out a Loan
How should you finance your flip? It may seem unrealistic to finance with cash, so you might be thinking about a mortgage. You may be able to get a mortgage loan, hard cash loan, or even use a home equity line of credit (HELOC.)
However, using financing means that you add extra costs to the project which could easily put you at a negative ROI. You’ll pay interest for months as you renovate, and you may feel pressure to cut corners or make poor decisions in order to finish faster.
A flipper with a loan, especially a hard cash loan, will have a lot of pressure to sell quickly. If the market is slow, you can’t afford to wait it out.
Let’s take an example. You purchase the Marion home we mentioned for $100,610. When the repairs are made, you expect a profit of $51,690.
Unfortunately, you hit some roadblocks. There’s an unexpected repair that costs $1,500. It takes an extra two months to finish, with additional reno costs of $2,000. Finally, it sits on the market for a month and you drop the price to $150,500 to make a sale.
You’ve ended up with $26,390, and with closing costs and interest on the loan, you probably made less than $10,000. That’s not much for eight months of hard work! However, if you had paid cash, you could have waited out the soft market. You would have had some holding costs, but you could have gained an additional $21,800 on price alone.
If you do decide to take a loan, be sure to do your research to ensure you take those costs into account and don’t end up having a couple of unexpected expenses drop you into a negative return.
5 Best Cities in Iowa for House Flippers in 2019
So where’s the market hot in Iowa? Take a look at these areas that are growing and have a strong economy and market forecast.
Not only is this small area one of the top places to live in Iowa, but it’s also a very hot market. Median home prices are $275,600 and home values have grown 5.8% in the last year. They are expected to grow at least 3.2% in the next year.
This small city is close to Cedar Rapids, making it a great place to live and work. Home values have grown 9.2% in the last year and are expected to grow at least 3.8% in the next year. A bargain here could turn a major profit!
This neighborhood in Des Moines is an excellent place to invest. In the last year home prices have gone up 6.7% and are expected to rise at least 2.7% in the next year. This neighborhood is very desirable, with high rankings in family friendliness, schools, and housing. Best of all, 71% of residents own their homes.
Overall, Des Moines is a very strong market for investors. Home prices have risen 7.2% in the last year and are expected to grow 4.7% in the next year. It’s an extremely hot market and 60% of residents own their homes.
Urbandale, a suburb of Des Moines, is another great choice for investors. 79% of residents own their homes, making it a great place to flip homes. Home values have increased 4.6% in the last year and are expected to grow another 2.8% in the next year.
Next Steps for Iowa Home Flippers
The biggest piece of advice we can give is to get help from a professional full-service realtor. From finding the right home in the beginning to helping you sell when the market is right, it’s vital to have a professional perspective.
Clever can help connect you to experienced local realtors in the area where you’re planning to invest. Best of all, you can save a significant amount of money on your listing commission when you choose a Clever Partner Agent. You’ll only pay a flat fee of $3,500 (or 1.5% of the price if the home sells over $350,000.)
If you’re ready to get started, contact us today. We can answer all of your questions and connect you to an experienced agent for a no-obligation consultation.