Deciding to flip homes can be a great real estate investment strategy, particularly if you find the right market. Flipping homes in Washington, D.C. can be risky, particularly for novice investors. This guide will walk you through the factors you should consider when flipping homes in Washington, D.C.
There are many great real estate investment methods out there, but flipping homes is one of the best ways to earn a quick profit. However, flipping homes requires quite a bit of research and planning, and it is one of the riskiest types of investment strategies.
When done successfully, flipping homes can generate large sums of profit in a short period of time. In order to improve your odds of flipping a home successfully in the Washington, D.C. area, it’s important to understand your local market and search for the right property.
This guide will help you navigate through the entire flipping process to ensure you’re well prepared before flipping your first home in Washington, D.C.
2019 Washington, D.C. Housing Market Analysis
Understanding the median home prices for real estate on the market in Washington, D.C. can help potential investors looking to flip homes better gauge the market. While the country, in general, is experiencing a seller’s market, the market in Washington, D.C. is much more neutral, meaning it’s not favoring buyers or sellers at the moment.
According to Zillow data, right now, the median home value in Washington, D.C. is $573,900, an increase of 2% from last year. This value is expected to fall by 0.5% over the next year. Currently, the average home listing price in Washington, D.C. is $599,000, although the median price of homes being sold is $533,300, well under asking price.
Of course, homes values range greatly depending on what D.C. neighborhood you’re looking to purchase in. For instance, right now in the Bloomingdale neighborhood, the median home value is $843,100 and is predicted to increase by another 2.6%. In the Penn Quarter neighborhood, however, the median home value is $465,900 and is predicted to increase at a much smaller rate of 0.4%.
Investing in a home with a high potential to increase in value can help you better maximize the amount of profit you can make when flipping a home.
To up the odds of making more money while decreasing your risk, team up with a local real estate agent who can provide insight into the local market, as well as potential investment properties to flip.
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How to Tell if a Washington, D.C. Property Is a Good Investment
Deciding on the perfect property in Washington, D.C. to flip is an important decision that can impact your overall profit. Purchasing a cheap property to restore is a general strategy, but finding the perfect balance between the right neighborhood and the property’s current condition is key in order to minimize your risk.
You can start by researching current homes on the market in Washington, D.C. in order to understand what the hottest neighborhoods are and the types of amenities that are attractive to buyers. This will help you better narrow down what type of features are most important to buyers in the D.C. area.
Working with a local real estate agent can also help you gauge what types of homes sell more quickly in the D.C. area and what features can help increase a property’s value.
How to Turn a Profit When Flipping a Washington, D.C. House
It’s easy to find an affordable property in Washington, D.C., but in order to turn a profit when flipping homes, you’ll need to estimate renovations, loan interest, and other expenses before deciding if a particular opportunity is right for you. Ensuring you do all of the necessary research before purchasing a home will help you avoid getting into a risky investment situation.
In order to ensure your flipped property will generate the right ROI (return on investment) before making a buying decision, you should consider the top-rated flipping strategy: the 70% rule. This strategy helps potential investors decide if particular properties or investment opportunities are worth the overall risk.
Understanding the 70% Rule
The 70% rule urges investors to only pay up to 70% of the after repair value (ARV) of a property, minus the costs of repairs and renovations. You can use this formula to reduce the risk of losing money on an investment property.
To better understand the 70% rule, let’s look at an example based on the median listing property in Washington, D.C.: $599,900.
If your home’s ARV is $599,900 and requires $70,000 in repairs, you shouldn’t pay more than $349,930 for the property.
$599,900 x 70% = $419,930 - $70,000 = $349,930
To better specify your homes ARV, it’s helpful to research comparable homes in your local neighborhood to determine what they’re selling for. Working with a good repair company or contractor can also help you best estimate your overall repair expenses.
Your real estate agent can also help you make smart investment decisions and help you determine a property’s potential ARV.
Other Factors to Consider
Once you’ve determined the ROI your property is likely to generate, it’s important to take into consideration how long the overall flipping process will take. Predicting how long it will take to buy, renovate, and resell a property will help you determine how long you’ll wait before seeing your profit.
On average, it takes 180 days to complete the entire flipping process from purchase to resale. This number varies greatly across specific markets but is a good guideline to have in mind when determining your budget and planning your flipping timeline.
Homes in Washington, D.C. sit on the market for an average of 64 days. Although your real estate agent can likely help speed this timeline up, if you use this as a baseline, it will take 64 days to purchase your property and 64 days to resell your flipped property. This leaves you with 52 days to renovate and repair your property if you hope to complete the entire process within 180 days.
Understanding how delays can impact your profit or overall sale will help you better plan for unexpected problems.
Paying Cash vs. Taking Out a Loan
When deciding how to finance your investment, it’s important to understand that paying for real estate you intend to flip with cash will always yield greater profit than financing the property. While you can take out a mortgage or home equity loan (HEL) or line of credit (HELOC), paying in cash is the least risky method of financing your project.
Since investing in flipping a property always has unforeseen factors, if the process takes longer than planned, you could end up selling the home for less than the planned ARV and spending more on interest if you finance your project. Paying too much in interest can significantly impact your ROI and in some cases risk your profit entirely.
For instance, if you list your Washington, D.C. investment at $599,900 and finance the project, here’s what can happen if unforeseen repairs pop up and the timeline is extended.
If you plan on selling your property for $599,900, but it sits on the market for longer than a month, you might be forced to decrease the sales value to $575,000 or less. Here’s how everything will add up if this happens.
- Purchase loan amount - $399,940
- Renovation loan amount - $78,000
- Interest paid over four months - $23,790
- Unexpected repairs - $17,000
- Closing Costs, $50,000
This leaves you with a profit of $19,900. While that might seem decent, let’s take a look at what it would have cost if you were able to leave your home on the market at the higher ARV (without incurring interest rate fees). By financing with cash and selling for $599,900, you could have earned $54,960 in profit.
Best Cities in Washington, D.C. for House Flippers in 2019
Even though the market in Washington, D.C. is fairly neutral, there are some neighborhoods where the market is hot and it’s more likely that you’ll turn a profit when flipping a property. Here are the top five neighborhoods to consider for flipping properties in Washington, D.C. in 2019.
This popular Washington, D.C. neighborhood has some of the highest home values in the city; they’ve increased by 5.7% since 2018.
Median Home Value = $843,100
Projected Home Value Growth = 2.6%
The market in Logan Circle is very hot right now, which means you’re more likely to find buyers willing to pay top dollar, quickly.
Median Home Value = $581,700
Median Listing Price = $639,000
Projected Home Value Growth = 0.3%
Home prices in Truxton Circle are on the high side for Washington, D.C. and have increased by 4.8% over the past year.
Median Home Value = $757,500
Projected Home Value Growth = 2.8%
This popular Washington, D.C. neighborhood is a great place to buy property, with high home values that have increased by 4.7% over the past year.
Median Home Value = $811,200
Projected Home Value Growth = 1.8%
While home values in NoMa are slightly below average, the market is hot with values having increased by 6.5% over the past year.
Median Home Value = $462,800
Projected Home Value Growth = 4.3%
Next Steps for Washington, D.C. House Flippers
Taking the first step towards flipping homes can be an excellent way for potential investors to generate ROI quickly. While you can earn a large profit from investing and flipping properties in Washington, D.C., it’s important to be aware of the risks that can pop up along the way. Teaming up with an experienced real estate agent can help you reduce your investment risk.
If you’re in the market for a local real estate agent, let Clever help. Clever Partner Agents are all vetted, top-rated agents who can help you navigate the investment process, from making financial decisions to buying and reselling your property. Clever Partner Agents will also help you find your ideal investment property, quickly.
When it comes time to resell your investment property, you can save money with Clever Partner Agents since they only charge $3,000 or a 1% commission for homes over $350,000. Compared to the 3% charged by other real estate agents, you can save tens of thousands in commission fees. If your home lists at $599,900, for instance, you’ll only pay your agent $5,999 as opposed to $17,997, putting $11,998 back in your pocket.