Maryland is a great place to try your hand at house flipping. However, you shouldn't embark on your house flipping journey without being prepared and understanding what to expect. Here's what you need to know before you start flipping homes in Maryland.
The process of flipping a house involves taking a low-cost property, renovating it, and reselling it for a profit several months down the line. This can be a very lucrative investment, and many popular television programs have glamorized the entire process.
While it can be very exciting to flip a house, the process usually requires much more work than TV shows let on. However, the fact that this investment opportunity can yield quick turnarounds and fast profits is entirely true. The downside, of course, is that there is substantial risk involved in house flipping.
Actually, house flipping is one of the riskier investment options available. If you're not careful, you could lose everything. Taxes and repairs can quickly cut into your profits, and poor financing choices can lead to more debt and negative ROI.
That being said, with proper guidance and planning, house flipping can be a viable option that yields a great profit. Here are just a few of the considerations you need to take into account if you're thinking about trying your hand at flipping a house.
2019 Maryland Housing Market Analysis
Maryland is a fast-growing real estate market with a great deal of opportunity for investors. The median home value here is $291,000. The state's real estate market has seen a one-year growth of 4.2% and has a one-year growth forecast of 3.0%. The median listing price here is $305,000, and the median sale price is $264,700.
However, these figures only apply as a baseline for the entire state. There is a very wide range of variation between cities. For example, Annapolis, Maryland has a median home value of $400,000 while Baltimore, Maryland has a median home value of just $121,000.
More than just an interesting fact, this variability can make timing the market complicated and can lead to investors having to make very different decisions depending on where they're flipping a house.
Would-be home flippers should partner with an experienced real estate agent in the local market who knows that market inside and out and can provide expert guidance. Only by utilizing the help of a local professional can you truly stack the deck in your favor and move forward with the utmost confidence.
How to Tell if a Maryland Property is a Good Investment
There are several things you should look for when trying to determine whether or not a particular property is a good investment for you. While this is not a complete list, it should get you started thinking about how to look at and evaluate potential properties to flip.
First, always pay attention to licensing and zoning issues. If there are liens against the property, zoning issues, or anything of the sort, it's usually a good idea to move on to your next best option. The last thing you want to do is complicate an already risky situation by dealing with a property that has known issues associated with it.
Second, be realistic. There are several TV shows that sell a rose-colored image of what house flipping looks like. While this can certainly be the case, it's important to understand that a lot of work goes into building that kind of a portfolio.
It's very likely that you'll have to start small and build your portfolio up from there. Start with something doable that you can experience success with, and then scale accordingly if you decide to further your investment activity.
Third, look for a selling price that is below the county's assessed value. If you can find a property that sells below the appraisal value that the county provided, you're almost guaranteed a profit. That's because fair market value is calculated by taking the county's assessed value and adding 10 to 20% on top of it.
Finally, look for common sense selling points like a good school district. School districts are often a big sticking point for many buyers so be sure to research this. In some communities, being by a specific school is enough to make a home sell.
Additionally, you want to pay attention to the neighborhood itself. Is it well-suited to your ideal buyer? Know your market and who you're trying to sell to, and spend some time in the neighborhood of the house you're trying to flip, if possible. Ask yourself whether or not your target buyer would want a house in that neighborhood.
Maryland-Specific Considerations
In Maryland specifically, you'll want to make sure that your home is free from water damage. There's a great deal of extreme weather that happens in Maryland and in the surrounding states, and this can cause conditions the breed mold, mildew, rot, and other water and moisture-related issues.
Pay particular attention to stucco homes. Stucco won't usually show damage until it's very severe and already affecting the underlying structure.
Always make sure to get an inspection done before you agree to purchase any property. Also, keep in mind that colonial charm and a polished veneer sells very well in Maryland.
General Considerations
There are several general considerations you should always take into account whenever you're considering a potential property.
What's the current condition of the home? How much will the repairs cost you? What's the comparable market value of the home?
There's a great deal to consider when evaluating a potential property to flip. Any one of these factors, if improperly considered, can turn a potential profit into a huge loss. It's important to partner with an experienced local real estate agent who is knowledgeable in flipping houses in your area. This agent will be able to guide you through the entire process and help you avoid common pitfalls.
How to Turn a Profit When Flipping a Maryland House
If you're trying to turn a profit, which most investors are, there's never a guarantee. However, there are several best practices that can help you get ahead of the game and make it more likely that you will succeed. Here are a few things to consider when trying to turn a profit by house flipping in Maryland.
Learn Your Market
The first thing you want to do is to learn your market inside and out. It's important to understand the kind of buyer that you're targeting. It's equally important to know what the buyer wants and needs and home.
Do your research and find locations that appeal to the target market you're interested in selling to. Then, partner with an experienced local real estate agent who can put you on the fast track to success.
When it comes to high-risk Investments like house flipping, you can't afford to speculate. A real estate agent will use hard data and trends to help you make informed decisions.
Know Your Financial Options
It's equally important to understand and honestly evaluate your own financial situation. You need to know what you can afford to spend and what you can afford to lose. Learn about the various financing options that exists for you and the related benefits and risks associated with them. We'll go over more of that in the next section.
Follow the 70% Rule
There's a rule in house flipping that states that you shouldn't spend more on an investment property than 70% of the after repair value (ARV) minus the repair costs. The formula looks something like this.
Max Investment = ARV(0.70) — Repairs
For example, in Frederick, Maryland, the median home value is $259,700. Let's assume you have $25,000 in repair costs.
$259,700(0.70) — $25,000 = $156,790
Using this example, for this hypothetical property you wouldn't want to spend more than $156,790 on your initial purchase of the property.
Other Considerations
Finally, consider general factors like the amount of repair time you'll have to invest, the average time required to flip a house, which is usually between 150 and 190 days, and the financing options that are available to you.
Paying Cash vs. Taking Out a Loan
There are various financing options available to people who are trying to flip a home. Cash, of course, is one option. However, another popular option is to use the equity in your current home to finance either the down payment for your new property, the repair costs for that property, or both.
Home Equity Line of Credit (HELOC)
A home equity line of credit utilizes the equity in your home to fund a credit line that you can use as needed. You can finance things like your initial down payment, repair costs that come up, and other expenses.
The benefit of a home equity line of credit is that it's flexible. You don't have to know how much you need when you go to take out the credit line, so you can borrow and repay as it suits your situation.
Home Equity Loan (HEL)
A home equity loan is similar to a HELOC, except that instead of taking out a credit line, you take out a lump sum. This sum is a fixed amount that can't be added to once the loan is in progress, and you usually can't free up cash by repaying some of the principal like you can in some versions of a HELOC.
Cash Still Wins
The best option for funding and financing your house flipping investment is almost always cash. Flipping is inherently risky, and adding debt to the mix can make things all the more perilous. This is especially true when you're using your current home as collateral.
The option to use a lending solution is always there, but it's imperative to know the loan terms associated with that financing option and your own financial situation inside and out before you make any decisions.
Making the wrong financing choice can quickly lead to a negative ROI and other detrimental financial consequences.
5 Best Cities in Maryland for House Flippers in 2019
It's common to feel overwhelmed when you start searching for a property to flip. Choosing the right market can seem intimidating at first. However, starting out in some of the most up-and-coming markets can help you get a jump start on success. Here are five cities that provide good opportunities for would-be house flippers in Maryland.
Baltimore
Baltimore is a very hot market that's the best of both city and suburban environments. The median home value here is $119,200, the median listing price is $149,900, and the median sale price is $109,600. The market here has grown 9.7% in the last year and is expected to grow another 4.4% in the coming year. The average home here stays on the market for 117 days.
Glen Burnie
Glen Burnie is another great market for would-be investors. The median home value here is $252,200. The market has experienced a growth of 4.0% in the last year, and it is expected to grow another 2.6% in the coming year. The median list price here is $284,900, and the median sale price is $249,700. Homes here spend an average of 98 days on the market.
Frederick
Frederick is another great community with beautiful homes and a vibrant atmosphere. The median home value here is $289,100. The median list price is $347,500, the median sale price is $277,900, and the market has experienced a one year growth of 5.7%. The market here is expected to grow another 4.2% in the coming year, and homes here spend an average of 93 days on the market.
Germantown
Germantown has a rich atmosphere and excellent community attributes that appeal to a wide variety of people. The median home value here is $303,300, the median list price is $305,000, and the median sale price is $276,700. The market here has experienced a growth of 2.2% over the last year and is expected to grow another 1.9% in the coming year. The average home here spends 86 days on the market.
Gaithersburg, MD
This community is also a great opportunity for investors in Maryland. The median home value here is $374,800, the median list price is $387,500, and the median sale price is $357,400. This market has experienced a one year growth of 1.6% and expects to grow an equal amount in the coming year. The average home here spends 102 days on the market.
Next Steps for Maryland House Flippers
There are many important decisions to make when you're looking to flip a home. Each of these decisions is vital to your success. While house flipping can be a lucrative business, it can also be an investment that carries a high risk.
It's important to research the local perspective market you're interested in and find out what home buyers there are looking for. It's equally important to evaluate your own financial situation and the financing options available to you.
Be sure to consult with a real estate professional in your area that has experience in the local market and in house flipping. A local, experienced real estate agent can guide and advise you through both the buying and selling process.
Especially when it comes time to sell, Clever Partner Agents work for a fraction of the typical commission rate. this helps you achieve the highest possible profit margin on your flip.
Additionally, working with a top rated professional can help you bring in a great price and ensure that the sale goes through without any trouble.