If you are tempted to enter the world of house flipping, make sure you aren’t biting off more than you can chew. Get the advice from a real estate professional in Louisiana to help you with the process.
If it’s on TV, it must be true. Right?
You may have seen the house flipping shows and have watched real-life people purchase a ramshackle home, rip out the carpet to find beautiful hardwood floors underneath, and then sell the home for a profit. Of course, all this takes place in 30 minutes (minus commercials).
The reality is that even the savviest of home investors can make costly errors when picking out property to flip.
Perhaps there are unanticipated expenses on the home.
Maybe renovation materials are more expensive than you anticipated because nothing in the home is a standard size. Perhaps you accidentally break a pipe when installing a new toilet, and your mistake causes other renovations to be delayed. When it comes to remodeling a home, anything can happen.
Perhaps you are an expert home remodeler, but you aren’t a "money person." Do you understand the tax implications of flipping houses? Did you figure in the capital gains tax when determining how much you need to collect on a property to make a profit?
Speaking of taxes, how will your renovations affect the property tax? Will a higher tax bill make it difficult to find a buyer for the home?
Do you have enough cash to pay for insurance, utilities, and yard maintenance while you are renovating?
What if you have a difficult time selling the home? What if the sweat equity you put into the house does not pay off, and you end up losing money?
Read on to discover the hot markets for flipping houses within Louisiana. Learn how to tell if a particular property would be a good investment. Learn about financing that is available for house flippers. Finally, discover how the right local real estate agent can help you with the process.
2019 Louisiana Housing Market Analysis
To make money by flipping houses, it is essential that you know the local real estate market.
You only get this kind of knowledge by living within the area, and spending years following the market from neighborhood to neighborhood.
There are over 50,000 square miles in the state of Louisiana, so you know that a home’s value is going to vary significantly from region to region.
While the average home in the Woodworth area of Alexandria is $243,600, if you travel two hours north to Springhill, the average price of a home is $44,400.
Springhill is in the Shreveport area of Louisiana, but if you look at other homes in the Shreveport area, such as Keithville, you will be paying on average $178,900 for a home.
Within Keithville, currently there are two three-bedroom and two-bath homes for sale. One is $595,000, and one is $54,900.
Do you feel confident in your knowledge of Louisiana real estate? How much are you willing to gamble on that knowledge?
Making a profit by flipping houses is difficult enough. Don’t purchase investment real estate without the advice of a real estate agent in the Louisiana area.
How to Tell if a Louisiana Property is a Good Investment
Finding a property to flip is more difficult than you would think. Ideally, you should be looking for the cheapest home in a great neighborhood. Some experts recommend that the house should be 70% of the after repair value minus the cost of the repairs. Learn more about this in the next section of this article.
Plan to sell the renovated home at the low-end value of the homes within the neighborhood. If the homes on the block are going for $150,000 to $170,000, determine if you are still able to make a comfortable profit if the house sells at $150,000 or even $149,000.
Finally, look for homes in popular areas that get a lot of real estate traffic. It doesn’t matter how amazing your renovations look if the house isn’t in a desirable, safe neighborhood with good schools. You want your property to be in an area that is sought after.
Seek expert guidance when choosing investment properties. There are Clever Partner Agents in Louisiana who specialize in investment real estate. Ask their advice before making any purchasing decisions.
How to Turn a Profit When Flipping a Louisiana House
You know the general idea on how to make money by flipping houses, but let’s talk numbers.
Let’s assume you want to purchase a home in Prairieville because you know that it is a desirable area near Baton Rouge.
The 70% rule says that you should pay no more than 70% of the after-repair value of a property, minus the cost of the renovation needed to be completed on the home.
So if you think that a Prairieville home is going to be worth $236,400 after you do the necessary repairs, and the home needs $30,000 worth of work, you should pay no more than $135,480 for the house.
$236,400 (anticipated value after repairs) x 70% = $165,480 – $30,000 (for repairs) = $135,480.
The current national data says that it takes an average of 180 days to flip a home in the U.S, which is longer than the average ten years ago.
The good news is that Baton Rouge is ranked in the top 20 places in the U.S. where home flipping occurs. This shows that there are people in Louisiana who are flipping homes for profit. If they can do it, surely you can too.
Paying Cash vs. Taking Out a Loan
There are plenty of stories out there of people who go into the home flipping business only to discover they have bitten off more than they can chew. To reduce the risk of financial devastation that may come from a poor investment, consider using cash to pay for your investment property. If you pay for an investment home in cash, you can have more flexibility on when the house actually sells.
Let say you purchase the home in Prairieville for $135,480. You finance the purchase price on the house, plus the $30,000 you planned to spend on renovations. You expect to make over $60,000 on the home after you sell it.
You take out a HELOC loan for 5.48%.
All is going well until the air conditioning unit unexpectedly dies on the home, and your regular contractor can’t make the renovations on the house as quickly as you were planning.
Weeks stretch into months and the renovations are not yet complete. In the meantime, you are paying $750 per month in interest on the loan.
Then a local company lays off 10,000 employees, and the local market is devastated. You may finally sell the home eight months later, but after paying $15,000 in closing costs and taxes, instead of making a cool $60,000 on your investment, you end up making $4,500. This $4,500 is your earnings over eight months.
If you had paid cash for the home, you could have waited until the market recovered to sell the house. Paying cash gives you more flexibility because you aren’t paying interest and principal on a loan every month.
While you can get a home equity line of credit loan to flip a house, the safest method for flipping homes is paying cash.
Know your finances. Know how the worst-case scenario will affect your financial health.
5 Best Cities in Louisiana for House Flippers in 2019
So where should you invest your money? While Prairieville is a desirable area to live, and you shouldn’t have any problem reselling a piece of investment property in the area, other places in Louisiana have relatively low property values, but they have a strong market forecast.
Although Hackberry’s median listing price is $290,000, which is quite a bit higher than the state-wide average, homes tend to be on the market for days. Some of the hottest neighborhoods near Hackberry are New Calder Place, Old Town, Pear Orchard, and Rockwell.
Homes near Gibsland, Louisiana can be purchased for a lot less than homes in Hackberry. Buy the least expensive house in the most expensive neighborhood, and your investment will surely pay off well.
New Orleans real estate has gone up since 2000. The city has enjoyed a rebirth since Katrina, and many neighborhoods offer excellent investment opportunities.
Located west of New Orleans, Garyville is also on the top five highest appreciating Louisiana cities since 2000.
Located in the south-central part of the state, Melville offers an opportunity to purchase an inexpensive home in an expensive area.
Next Steps for Louisiana House Flippers
Are you ready to take the next step in investment real estate? Consider working with a Clever Partner Agent. Our agents will help you grab up an inexpensive piece of real estate with a lot of possibilities. When you are ready to sell, our agents will work for a fraction of the typical commission rate. This will help you maintain the highest possible margin on your flip.