In 2018, house flipping hit a decade high, according to Attom Data Solutions. In fact, flipping homes was so popular that in 2016, it accounted for 6% of all home sales.
The reason for the recent surge in home flipping isn't difficult to understand. There are significant returns for investors. But with the rewards come risks as well.
If you're thinking of flipping houses in Missouri, there are a few things you need to know. For one, WalletHub ranked three cities in the state in the top 150 communities to flip homes (St. Louis, Kansas City, and Springfield).
While it's clear that the state offers good returns for home flippers, anyone considering buying a home to flip should understand that there is a very real potential that property values could decrease. The cost for repairs on a purchased property may also end up being more expensive than you expected.
If you are a novice when it comes to house flipping, you should seriously consider working with a professional real estate agent. They will guide you through the entire process from selecting a property to buy to the renovation stage all the way to the final sale. Many are experts in home investing and are connected to local contractors that you can rely upon.
Here are some factors you need to consider if you want to start flipping houses in Missouri.
2019 Missouri Housing Market Analysis
Missouri is an attractive state for home flipping because of its relatively inexpensive properties. The median home value in the state is $161,800. Year-over-year growth is also robust and continuing its growth after expanding by 8% between 2017 and 2018.
Median home values in the state are much lower than the national median home value of $226,700. Missouri also outpaced national growth in the housing sector between 2017 and 2018. It's important to note, however, that home values vary greatly depending on the location of the property. The median home value in St. Louis is $119,500 and its housing sector growth rate is expected to nearly double this year.
If you are considering buying a property to flip in Missouri, you should work with an experienced local agent who knows the local market and regional trends. A Clever Partner Agent will represent your best interest when buying a home and when it's time to sell.
How to Tell if a Missouri Property is a Good Investment
The ideal home to flip is an undervalued house in a great neighborhood. All Clever Partner Agents have access to the most current market data and can inform you about local trends. They are experts at analyzing local market conditions to determine if a property has the potential for a relatively quick profit after you fix it up.
They also have full access to MLS listings and know the historic trends and growth potential of Missouri's unique communities. A professional realtor will help you find a house or condominium unit at below market value in a neighborhood where property values are climbing.
The best way to ensure that a property is a good investment is to have a pre-purchase home inspection done. It will tell you about any major structural or foundation damage that could end up making your home flip too risky.
Home flippers who buy through an auction should find out if they allow home inspections. Not all auctions allow them and it's in your best interest to make sure that you are informed about any damage to the property.
How to Turn a Profit When Flipping a Missouri House
There are several factors that you need to consider if you want to make sure your house flip is profitable. The rule of thumb for investors is generally to pay 70% of the after repair value (AVR) of a property minus the cost of the repairs.
If we apply the 70% rule to a Missouri home worth the median state value and needing $10,000 for fix-ups, we would multiply $161,800 by 70%. That equals $113,260. We then subtract $10,000 for repair costs and end up with $103,260, the value we should pay for the property to maximize the potential for profits.
The process is made much easier and less stressful by a professional realtor who can guide you through it step-by-step.
Paying Cash Vs. Taking Out a Loan
The best way to flip a house is with cash. This way you will not incur interest charges for the time needed to repair and sell the property.
But not everyone has the cash needed to flip houses. Many home flippers need help from lenders. There are quite a few financing options when it comes to covering the cost of fixing and flipping a property.
You may be able to finance your home flip through a HELOC (home equity line of credit). HELOCs are one of the easiest ways to secure money for your potential project. If you have enough equity in your home and a good credit score you can usually secure this loan relatively quickly.
A standard home equity loan is also a good option. No matter what type of loan you take out, you will want to sell your property as quickly as possible and repay the loan just as quickly.
A professional realtor can point you to a good lender. A Clever Partner Agent can also help you determine the potential rate of return for a property after factoring in the costs of your loan, the money needed for repairs, and the cost of the home purchase.
Five Best Cities in Missouri for House Flippers in 2019
1. Kansas City
Home values in this city have been on a strong upward trajectory and they show no sign of slowing down. Kansas City's median home value is $150,100 and it saw a one-year change of 10.4% between 2017 and 2018.
The city is expecting its booming economy to keep expanding. There is already a jobs spurt due to the expansion of the city's airport.
2. St. Louis
A major lending company recently reported that it's seeing increased inquiries for loans from investors looking to flip properties in St. Louis. Attom Data Solutions noted flipping rates are on the rise throughout the Midwest.
St. Louis may be the perfect place for home flipping opportunities. The median home value in the city is $119,500. That makes it one of the most affordable metropolitan centers in the country.
This is one of the hottest real estate markets in the region. The median home value in Springfield is $136,600. Its growth between 2017 and 2018 amazed investors at 8.9%. The forecast for this year is almost as strong.
This is Missouri's fifth largest city and it bills itself as an “exciting pro-business community.” It has attracted a lot of newcomers with home sales expanding by about 11% between 2017 and 2018. It is also a relatively affordable housing market with the median home value at $123,000.
5. Blue Springs
This is another extremely hot real estate market in Missouri and it presents a great opportunity for home flippers. The median home value in the city is $192,200 and it saw nearly 12% growth between 2017 and 2018. This year, it's expected to grow by another 6.8%.
Next Steps for Missouri House Flippers
If you are new to house flipping, it is highly recommended that you work with an experienced realtor. Clever Partner Agents can help you determine what the risk factors for flipping a home in a particular community may be.
After you have fixed up your property and want to sell, Partner Agents will sell your home for a fraction of the typical commission rate. They are full service, so you don't sacrifice any of the benefits of having a seller's agent.
All Clever Partner Agents are up-to-date on the current trends of Missouri's real estate market. They are top negotiators from major companies like Keller Williams, Century 21, and RE/MAX, and they will ensure that you make the most from your investment.