Investing in real estate is a great way to build wealth and can often do so more quickly than traditional routes like investing in the stock market. Flipping is just one of several ways to invest in property.
Flipping a home involves buying a home that needs some work at a price well below market value. A “flipper” then makes needed repairs and sells for a profit. Sounds easy, right? It’s actually a lot trickier than people think. Instead of being a cash cow, a poorly evaluated deal — paying too much in the first place, underestimating repairs, or overestimating ultimate selling price — could end up costing you thousands. Here are a few considerations you need to take into about if you’re trying your hand at flipping in Nebraska.
2019 Nebraska Housing Market Analysis
Omaha and Lincoln are the two largest markets in the state of Nebraska and likely your best places to flip a house. At a population of about half a million, Omaha median home value was $175,500 in February 2019, while median list price was $229,000. Lincoln values are a bit higher at a median home value of $183,700 and median list price of $265,000. While Lincoln’s population is just under $300,000, the city is home to the University of Nebraska and the state’s capitol.
While data on homes in Omaha and Lincoln are quite similar, values and pricing can fluctuate significantly region to region, city to city or even neighborhood to neighborhood. For example, Roca — a town just 15 miles from Lincoln — has a whopping median home value of $347,000. Likewise, Council Bluffs, Iowa — just four miles outside of Omaha — has a median home value of only $127,000.
This wide range emphasizes the importance of finding an experienced, local agent who knows your market of choice inside and out to help you find an investment property.
How to Tell if a Nebraska Property is a Good Investment
The most important decision when buying a Nebraska home to flip is the purchase price. The deal is made on the buy. Generally, you’ll want to find the cheapest house on the street in a great neighborhood — the location of the home is one of the few things you can’t change. In Lincoln or Omaha, choose a fixer-upper home near good schools. There’s a high probability you’ll end up selling to a young couple or family and location is key.
Next, you’ll want to run some numbers. Determine the current condition of the home and the cost of any repairs you’ll need to do. Then, estimate the amount you expect to get from a buyer when you sell the home based on a comparative market analysis and account for any closing costs. In theory, the difference between the two will be the profit you’ll make on your investment.
Since valuing a home and estimating repairs is an inexact science, you’ll want to lean on an expert to guide you through assessing prospective investment properties, especially if you’re a novice house flipper.
How to Turn a Profit When Flipping a Nebraska House
To make sure you get enough return on your investment for the time and energy you put into a flip, follow the 70% rule. Experienced flippers use this rule to analyze a home’s profitability and determine how much they’re willing to pay for a fixer-upper.
Investors shouldn’t pay more than 70% of the after-repair value (ARV) of the home after the cost of needed repairs. We’ll use the median home value in Omaha as our example.
If the home is worth $229,000 after repairs and you’ll need to pay $40,000 for those repairs, you’ll want to pay no more than $120,300.
$229,000 (ARV) x 70% = $160,300 - $40,000 (repairs) = $120,300
The 70% rule is an incredibly simplified guide for assessing a property. Other factors may play into your purchase, including the time of year — buying a home that needs a new roof in the winter in Nebraska might mean a roofer couldn’t replace it until spring, when the snow thaws and temps increase.
The average time to flip a house in Omaha is 167 days, so you’ll also want to factor in payments you’ll need to make during this time, like property taxes, utilities, liability insurance, and any loan interest you’re paying. These expenses can add up and are often overlooked by new investors.
Paying Cash vs. Taking Out a Loan
There are plenty of options for paying for a flip, but if you can manage it, cash is by far the most profitable and least stressful option. Financing the purchase means you’re paying interest on the money each day that passes. This can pressure to take a lower offer — with cash, you can wait out a slow market and get maximum selling price.
Consider the Omaha example above. You purchase a fixer-upper for $120,000 plus $6,000 in closing costs, and put in $40,000 for repairs. You’re in it for $166,000 and finance it all. You list at $229,000 but the home sits on the market in the winter so you drop the price to $210,000. After the buyer’s inspection, you must put in another $5,000. You close a month later, 180 days after your first purchased it. You pay $3,000 in closing costs and end up paying $3,000 in interest and $3,000 for bills (insurance, property taxes, water, trash, etc.) in that six months. Nebraska is known for its high property tax (2.093% effective rate in Omaha!), so nearly $1,250 of that is half a year’s property tax payment. You make a profit of $30,000. If you would have paid cash and waited out the market, you could have gotten the full $229,000 asking price and avoided paying interest, making $52,000 in profit — $22,000 more!
If paying cash isn’t an option for you, you can look at the following financing options:
Home Equity Lines of Credit
Home equity lines of credit (HELOCs) are lines of credit similar to a credit card, but use the equity you have in a property as collateral. In the case of flipping, you won’t have any equity built up yet so you would need to use your personal residence or another property you own as the collateral. This can be risky, especially if it’s where your family lives — if you can’t make the payment, you could lose your home through foreclosure. Interest rates of HELOCs are also variable throughout the life of the loan.
Home Equity Loans
A home equity loan (HEL) is similar to a HELOC but payments are structured more like a mortgage — a fixed monthly payment at a fixed interest rate. Traditional mortgages aren’t typically used for flips since lenders like to loan out at just 80% loan-to-value (LTV). Plus, you’ll need extra money to fund needed repairs before the house goes back on the market.
A traditional mortgage could be an option if you personal residence is fully paid off, but again, this is risky business as it uses your current home as collateral. More experienced investors also look at private loans through family, friends, or hard money lenders.
If you’re looking to finance a flip, make sure you understand all the costs and risks associated so you don’t fall into the trap of a negative return on your investment (ROI). Loans often come with strict terms and conditions and additional closing costs or fees.
5 Best Cities in Nebraska for House Flippers in 2019
At nearly half a million in population, Omaha is known as a “silicon prairie” as more tech companies are gravitating to this hot spot in the center of the country. Median home value is $175,500 and has increased at an annual rate of 6.9%. Median list price is $229,000. Choose higher-value areas to see the highest rate of appreciation. According to ATTOM data solutions, the average flipping gross profit in Lincoln is $53,178 with an average gross ROI of 75%.
Median home value in Lincoln is a bit higher at $183,700, with an annual increase of 6.9%. Median list price matches this trend, sitting at $264,900. Lincoln is the second largest city in the state with a population of around 300,000. According to ATTOM data solutions, the average flipping gross profit in Lincoln is $56,800 with an average gross ROI of 64%.
North Platte at just 25,000 residents is by all accounts a small town. But it is the center of activity for large surrounding farmland that is appreciating in value. Median home value is $147,800 and have gone up 8.8% in the past year. Median list price is $165,000. The low pricing makes this market a good one for those with limited cash to invest.
Kearney is home to the third branch of the University of Nebraska and the population is roughly 30,000. The median home value in Kearney is $214,400 and values have risen 5.5% over the past year. Median list price is $224,900.
The median home value in Firth is $271,300. Firth home values have gone up an incredible 16.8% over the past year, likely because of its close proximity to Lincoln and expanding of the city.
Next Steps for Nebraska House Flippers
If you’re looking to buy a flip in Nebraska, work with an experienced agent who can help you properly time your purchase and your sale, and ensure your purchasing in a neighborhood with the highest return.
Clever Partner Agents are also able to offer on-demand showings — sometimes in less than an hour — so you know you won’t miss out on a good property. Speed is key in finding a good flip deal. Plus, you’ll get a $1,000 buyer’s rebate on any home you purchase for more than $150,000.
When it’s time to sell, Clever Agents also work for a fraction of the typical commission rate — for a flat rate of just $3,000 if the house sells for less than $350,000. This helps 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.