If you’ve never heard of flipping houses, it’s when investors purchase a house that is in need of renovations and repairs and will turn around and sell the home for a profit once it’s been upgraded. What makes a house a “flip” is when you buy it with the intention of quickly reselling.
The average time that it takes from buying the home, flipping it, and selling it is usually as quick as several months or as long as a year. Investors will usually try to complete this entire process as quickly 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 trying your hand at flipping.
2019 Montana Housing Market Analysis
In Montana, the average home value is $238,600. Home values in Montana have gone up 7.0% over the past year, and it’s predicted they are expected to rise another 3.4% in the next year. The median price of homes currently listed is $325,000, which leaves room for investors to make a decent property off a flip.
Some of the cities in Montana vary greatly in price so you’ll need to take that into consideration as well. For example, in Missoula Montana, the median home value is $240,700 while in Great Falls homes are valued around $160,500.
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 Montana 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 Montana are Billings, Bozeman, and Missoula. They have thriving economies, a wide array of activities, and draw in many tourists. Attributes like these are what will make your property thrive in the market.
Other factors to include are checking for any zoning issues and liens. Some investors also 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 Montana 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 you have good credit. This is because you will most likely 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 $300,000 and needs $20,000 in repairs, you should not pay more than $190,000 for the house.
You will also want to make sure you have enough cash to avoid racking up your credit cards. 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. Even though flipping houses is intriguing and can turn a profit, you want to make sure you are also making smart financial decisions.
Another key to making a profit from your flip is picking a house in the right location. Think about it from a buyer’s perspective. Are there great schools and low crime rates? Will they have to worry about large amounts of traffic if they live close to a main road? Investors stress that it’s important to invest in the worst house in the best neighborhood, and not vice-versa.
Paying Cash vs. Taking Out a Loan
There are many different options when choosing to finance your flip. Some of them come with some disadvantages and it’s important to do proper research before choosing which route you want to take.
If you are needing to take out a loan because you don’t have enough saved up, a traditional home loan is not going to be the best option for flipping a house. These loans will take longer to close and you will still need to pay closing costs despite their relatively low fees and interest rates.
Some other issues that you might run into are having to take months just to be approved for the loan. Lenders will perform an extensive check on your finances and if anything stands out to them, this could further delay the loan process. This will be especially frustrating if you are planning on buying a foreclosure or short sale home.
If you choose to save up for this endeavor and pay cash, 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 when you take out a loan to fund a flip. Typically, you need to take into account some unexpected repairs are possible delays that make the project go longer.
Selling Price: $300,000
- Purchase Loan: $250,0000
- Renovation Loan: $30,000
- Estimated Interest Paid Over Six Months: $2,240
- Repairs: $2,000
- Closing Costs: $15,000
Your Profit: $580
As we can see, a profit of $580 is not going to be worth six months of hard work. However, as long as you understand the 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 Montana for House Flippers in 2019
Once you know how you plan to finance your flip, it’s time to find the best cities in Montana that will bring you a higher ROI (return on investment).
Sidney is the best city in Montana for house flippers because it has the highest appreciation rate in the entire state. Specifically, their appreciation rate has gone up 111.40% over the last 10 years. What is selling the most are single-family homes with 3-4 bedrooms. They have a great mix of people looking to rent or buy.
Culbertson is yet another thriving city with a climbing appreciation rate in real estate. The median home value is $169,000 and the average income is $64,674 which proves to be an affordable area for residents. This higher average income in comparison to the median home value means you should be able to make a decent profit from your flip. Also, this area would be great to flip a single family home because of it’s great public school system.
Fairview is a small city but still ranks in the top cities in Montana with the highest appreciation rate. The median home value is only $154,000, which means you won’t have to spend a ton of money to flip the worst house in the best neighborhood. There is a fairly even split between renters and buyers, which allows you to swing either way with the future of your investment property.
Four corners in Montana is a great place to flip a house thanks to their high median home value of $332,000. Most residents here own their homes which will give you a higher chance of selling your home instead of using it as a rental property. This area leans towards the higher average income demographic, which should help prevent from having to sell at a lower price to make a quick sale.
Lewistown has an abundance of properties that could be used to produce a profitable flip. Their median home value is around $116,000 which means you will be able to find a home in need of renovations and repairs for a low price. This area is full of families and young professionals looking to plant their roots and buy a nice home.
Next Steps for Montana 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.