More and more people are taking advantage of the booming economy and growing real estate market. House flipping has never been more popular. It comes with many rewards, and risks, too. Here’s what you need to know about flipping houses in Virginia.
It used to be that house flipping was limited to real estate speculators and those with a deep knowledge of the housing sector. But over the past few years, more people without any specialized real estate knowledge are becoming house flippers.
It’s become so popular that there are even television shows devoted to the subject. That’s not really surprising when you look at the profits that can be made from house flipping.
Virginia is a particularly good state to enter the house flipping market, even if you’re a novice. Last year, CNBC ranked it as the number seven market in the country when it came to house flipping. It found that the average profit was nearly $110,000.
But while there are good returns that can be made through house flipping, there are also some pitfalls that you need to be aware of. If you do not pick the right home, you could lose some or all of your investment money.
This could also happen if you buy a home in the wrong neighborhood or during a downturn in the market. In fact, anyone considering buying a home to flip should know that the potential of property values going down is real. You may also end up paying much more for repairs on a purchased property that you initially anticipated.
If you are a novice when it comes to real estate, it’s best to work with a professional real estate agent who can guide you through the process. They can answer any questions you have as you buy your property to flip, renovate it, and finally sell it. They can help you find the right neighborhood and home, and they can point you to dependable contractors for repairs and renovations.
Here are some factors you need to consider if you are considering flipping houses in Virginia.
2019 Virginia Housing Market Analysis
As noted above, Virginia is one of the best states in the country for home flippers right now. That’s good news if you’re a novice. If done correctly, it can be a great source of income. That requires knowledge and experience. It’s also why you should always work with a professional realtor to mitigate your risks, especially considering the average home prices can be quite steep depending on where you buy.
The average house price in Virginia last year was $341,015. If you flipped a home with an average home value in 2018, you could reasonably expect a profit of nearly $92,000. That’s a rate of return of 99.3%. It’s an extremely high return when you consider that the average time to flip a house was just 184 days.
But it’s important to find the right city and neighborhood to buy a property that you want to flip. The general rule is to find a property that is within your investment budget, leaves you money for repairs and renovations, and has the potential to sell quickly for a higher value.
This is difficult to do without the right data and knowledge. That’s because house prices can vary greatly from one region of the state to the next. In fact, there can be sharp differences even from block to block.
For example, the median home price in Herndon, Virginia, near Washington, D.C., is $528,900. It is expecting to see about 3% growth this year. You can get more bang for your buck if you decided to put your investment money into a home in Lexington instead.
The median home value there is just above $218,000. It saw 7.4% growth between 2017 and 2018 and it’s expected to grow at a similar rate this year. There are some neighborhoods in the city where you can get a home that needs little work for about $150,000.
It’s important to emphasize, however, that unless you have extensive real estate experience in the local market, you should not go it alone when it comes to flipping homes. Always work with an experienced local agent who knows the market inside and out.
How to Tell if a Virginia Property is a Good Investment
There are many factors to consider when looking at a potential property to flip. As stated earlier, not all homes and neighborhoods will bring you a hefty profit. In fact, you may just end up with a property that you can’t sell or must sell for a net loss after making repairs.
Of course, the ideal flipping opportunity is finding an extremely undervalued house in a great neighborhood. If you work with a Clever Partner Agent, he or she will be able to analyze local market conditions to determine if a property has the potential for a relatively quick profit after you fix it up.
Their knowledge and expertise of local neighborhoods are essential for any novice and even for experienced home flippers. They have full access to MLS listings and know the historic trends and growth potential of the neighborhoods in their markets. After all, they buy and sell homes every day and have actionable expertise they can share.
Expert house flippers will tell you that the first thing you need to know about house flipping is location, location, location. It may sound like a broken record, but it’s true. A professional realtor will be able to help you find a home in a neighborhood where property values are climbing.
You also want to find a home that presents as few renovation and repair surprises as possible. That means making sure your pre-purchase home inspection points out any major structural or foundation damage.
This is a good caveat for home flippers who buy through an auction where they are not able to do a home inspection. It’s in your best interest to make sure that you have extensive knowledge about any damage or problems with the property.
And you will want to make sure that the home you select for flipping is below its market value. Here’s a good rule: The worst house in a good neighborhood usually goes up in price, especially after a good makeover.
How to Turn a Profit When Flipping a Virginia House
There are no hard and fast rules when it comes to successfully flipping a property. But there are some factors that you need to consider to significantly increase your chances of making money. As a general rule, the total cost to flip a house can be about 10% of its purchase price.
It’s recommended that you work with a professional real estate agent and use comparable properties to see how the property you are interested in measures up. The rule of thumb for investors is generally to pay 70% of the after repair value (ARV or what a home is worth after it is fully repaired) of a property minus the cost of the repairs it will need.
Home flippers should always keep in mind that the cost of flipping a house is the total of the acquisition cost of the property, the repair and renovation costs, the carrying costs, and the cost to sell the property (including marketing).
If we apply the 70% rule to a Virginia home worth the median state value in need of $20,000 of repairs, we would multiply $257,700 by 70%. This equals $180,390. We would then subtract $20,000 from this figure bringing the cost of what we should pay for the property to $160,390.
If we buy the home for $160,000 and then sell it later for $257,000, it would net us a sizeable profit, even with the repair costs of $20,000. But you have to remember that you are also taking on risk and debt. You are also spending time and effort to fix and flip the property.
The process can be made much more efficient and less stressful if you work with a professional realtor who can guide you through the entire process.
Paying Cash Vs. Taking Out a Loan
Because house flipping involves risks, it is always best to invest with cash. This way you will not have to pay interest for the months while you are repairing the property and trying to sell it.
Also, using your own finances without going into debt will allow you to take the best course of action if flipping a home takes longer than expected. People who take out a loan to finance their home flip may act out of desperation (and sell at a lower price than they want to) just to get rid of the debt.
But not everyone has the cash on hand to flip houses without some help from lenders. There are quite a few fix and flip options when it comes to financing. These include a “hard money” or “rehab” loan where a short-term loan is granted so that the house flipper can buy and renovate a property.
You may also be able to finance your home flip through a home equity line of credit. HELOCs have minimum equity limits and require good credit scores, but they are one of the easiest ways to secure money for your potential project.
A standard home equity loan may also be a good fit. This would give you a lump sum to complete your repairs. The idea is to then sell your property as quickly as possible and repay the loan. This can be done repeatedly as long as you repay the loan in a timely manner.
A professional realtor will be able to work with you to determine the potential rate of return after factoring in the costs of your loan, the money needed for repairs, and the cost of the purchase property.
Five Best Cities in Virginia for House Flippers in 2019
1. Virginia Beach
Home values here have had consistent growth over the past few years. It’s an extremely hot seller’s market, so if you can find a good property in need of repairs, it will not be difficult to sell after you fix it up. The median home value in Virginia beach is $266,400. The median home price that homes sell at in this community is $250,000.
We noted earlier that Lexington has seen amazing year-over-year growth and its housing market is expected to expand into the foreseeable future. There are some properties regularly listed in the $130,000 range that may be of interest to novice home flippers with limited budgets.
This is one of the fastest-growing cities in Virginia and is already a major metropolitan center in the state. The Median home value in the city is $350,500 and home values saw an increase of nearly 5% between 2017 and 2018. Expect home prices to keep rising with the city’s population and jobs boom.
4. Newport News
Not only is this one of the hottest real estate markets in the state, it is also one of the most affordable. The median home value in the city is $179,400 and analysts predict home values to keep rising this year after the port city celebrated its best year in shipping activity. The city is also expecting a huge influx of jobs once funding for new submarine construction comes through.
This charming capital city is expected to continue its extraordinary growth in the housing sector. It saw a jump of 7.3% in home values between 2017 and 2018. Home prices are also relatively inexpensive. The median home value is $218,800 and the median price at which homes are sold at is $206,000.
Next Steps for Virginia House Flippers
It is essential that novice house flippers work with an experienced agent. Clever Partner Agents are experts in their field and know the ins and outs of Virginia’s communities and its housing sector.
Home flipping can be extremely profitable. It can also be very risky. A Clever Partner Agent can help you determine what those risks are. They can also help you navigate the real estate market so that you end up with a profit instead of a loss once all the repairs are made. They will also recommend contractors that you can trust so that you can make repairs quickly and sell your property fast.
When it comes time to sell, Partner Agents work for a fraction of the typical commission rate. They are also full service, so you can achieve the highest possible margin on your flip without sacrificing any of the benefits of a professional realtor.
All Clever Partner Agents are up-to-date on the current trends of the real estate market in Virginia. They are top negotiators from major companies like Keller Williams, Century 21, and RE/MAX and will help you make the most from your investment.