Is Ohio a good market for house flippers? And where should they invest? Our article has an overview of the Ohio housing market, including price appreciation trends and the best cities for investment, with information on the numbers you should know to get the best deal.
With the rise of house flipping and its presence on every home improvement network, you might be thinking of trying it yourself. It’s fun to watch a neglected home become beautiful again, and to dream about the large profits that house flippers can realize.
But successfully flipping houses is trickier than it looks on TV. A lot of things can go wrong, from unexpected repairs to a crash in the local economy. If the home doesn’t sell quickly, additional loan payments could also eat into your profits.
Take into consideration everything that could go wrong before purchasing a property to flip in Ohio. First-time flippers should assemble a team of professionals to help make it a success before buying. Start with a realtor to help you find potential properties and they can direct you to local contractors and loan officers to help make your project a success.
2019 Ohio Housing Market Analysis
The median home value for homes in Ohio is $139,100. They’ve risen 7.0% in the last year and are predicted to rise another 5.0% in 2019.
Home values vary in different cities and towns throughout Ohio. In Columbus, the median home value is $154,100, which was a rise of 8.3% year-over-year. Homes in Cincinnati have a slightly lower median home value, at $144,900, but they grew 10.9% in value last year and are expected to grow another 7.6% this year. Toledo home values are at $69,700 after rising 4.5% in 2018. Obviously, where you buy in Ohio will affect how much money you’ll need to invest and your potential profits.
Before deciding where to concentrate your search, partner with an experienced, local agent who can direct you to the best cities and neighborhoods for investment.
How to Tell if an Ohio Property is a Good Investment
Overpaying for a potential flip starts you off on the wrong foot. Look for homes that are underpriced when compared to the overall neighborhood’s housing stock.
Analyze the home’s current condition before thinking about adding it to your fix and flip portfolio. Walk away from homes which require major structural repairs such as roof or foundation work, no matter how cheaply they’re priced. These types of repairs can take longer to fix, requiring you to hold the house longer, and that eats into your margin. You want to find a “cream puff,” a home that primarily needs cosmetic repairs.
Your Clever Partner Agent will prepare a free comparative market analysis on nearby homes. The data they compile on recent home sales and how quickly they sold can help when planning your potential timeline and profit. Expert guidance from an experienced real estate agent helps novice flippers make sound investment decisions.
How to Turn a Profit When Flipping an Ohio House
No matter how you feel about a house, or how much you like it, always crunch the numbers. Don’t make an investment decision without having a clear picture of the finances involved.
Real estate investors have developed the 70% rule to guide home flippers. According to it, you should never pay more than 70% of the home’s after repair value or ARV less the cost of repairs when buying a home to flip.
If a home in Columbus is worth $154,100 after repairs, multiply it by .70 to get $107,870. Then deduct a $25,000 estimate for repairs, and you’ll have $82,870. According to the 70% rule that is the most you should pay for the home.
Written out as an equation, this would be $154,100 (ARV) x 0.70 = $107,870 – $25,000 (repairs) = $82,870.
This is one of the first equations you should calculate when looking at a potential property. If you can’t buy an investment for a price that fits the 70% rule, look at other neighborhoods.
A good ratio that every investor should know is your return on investment or ROI. It’s the amount you’ll make from the money that you invest. Take the current value of the investment, and subtract its cost, then divide the remaining amount dividing by the investment’s cost.
With the hypothetical house in Columbus, it would be $154,100 less the cost of $132,870 for the mortgage and repairs, divided by the $132,870 for an ROI of 0.16%. When calculating ROI on a specific property, don’t forget to add in realtor’s commissions, closing costs, and any loan payments during the period you hold the house to your expenses. Working with a low-commission realtor, however, will help you save on costs.
Paying Cash vs. Taking Out a Loan
Above all else, to make it as a flipper you need to purchase your deals. There are a number of financing options for house flippers, from traditional mortgages, HELOCs, and loan products designed for house flipping, but each of them will impact your deal in different ways.
Fix and flip loans, designed for flippers, are offered primarily by hard money lenders though some banks will work with experienced flippers. These are short-term, often interest-only loans, with higher rates than traditional mortgages. Interest rates start at 12% and go up from there, so you don’t want to be paying on them for long.
While traditional lenders will offer mortgages and home equity lines of credit to buyers with excellent credit and cash for a down payment it can take months to be approved for a traditional bank loan. By that time, someone else could have bought the property. You’ll need at least a 20% down payment, and if the bank requires interest upfront the deal may no longer be profitable.
In an ideal world, every flipper would be able to pay cash for their investments. Cash has several advantages. If market conditions shift while you’re fixing up the property, you can afford to hold onto the house until they’re once more in your favor. You won’t feel the pressure to sell at a loss to pay off your financing.
Taking out a loan increases the risk in your investment. Let’s say you purchased that house in the Columbus example above. You paid $132,870 in a mortgage and with a renovation loan. Your rough monthly payments for this financing could be around $1,400.
Repairs cost $5,000 more than expected, delaying the time until the house on the market, so you’ve now paid four months of payments instead of two. Then it takes six months to sell the house when you’d budgeted for three. Your numbers now look like this;
- Purchase loan $107,870
- Renovation loan $25,000
- Estimated payments $14,000
- Extra repairs $5,000
- Closing costs of 2% $3,082
Netting you a loss of $852 when you’d planned on a profit of roughly $11,000. Obviously, you want to stay on top of your numbers and plan for the unexpected.
4 Best Cities in Ohio for House Flippers in 2019
Both Cincinnati and Columbus made the list of top places to invest for real estate investor in 2019. Both cities have positive population growth combined with affordable housing stock. Homes in Cincinnati are listed at almost $50,000 more than their value, and about $10,000 more in Columbus. Back in 2016, flippers in Cincinnati saw returns of 87.2% on their investments.
Cleveland’s home values rose 11.8% in 2018, and will rise another 7.7% this year. Median home values are only $55,900, but those who are new to flipping might still want to look at the city. Because of the lower prices, it would be a good place to learn the ropes of flipping without taking on a lot of risk. And you could still make a profit.
In central Ohio, Clintonville offers home value appreciation of 6.0% year-over-year, with another 4.2% expected in 2019. In 2016, flippers in Clintonville realized profits of $79,000 on their flips.
Next Steps for Ohio House Flippers
Novice house flippers should work with an experienced agent to help them gain experience on calculating an investment’s return and shopping for flips. It’s an entirely different experience than shopping for a home as a personal residence.
Because Clever Partner Agents work for much less than a realtor’s typical commission you get the highest possible margin on your flip. But you’re not sacrificing service, as they will market your property to get you a top price and guide it through a smooth selling process. If you’re ready to learn more about flipping houses in Oregon, contact Clever today to be put in touch with one of our local agents.