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6 Best Ways to Analyze a Flippable Property

You don't have to buy every property that needs work or upgrades. Don't buy a property simply because the seller is motivated to sell it or the realtor tells you so. Don't buy a property simply because the wholesaler says it's a great deal. You buy a property because it is a good deal. The realtor, wholesaler, or seller has nothing to lose once you acquire the property. They make their money and they are out of the picture. You, on the other hand, are left with the property and any possible issues.

Due Diligence is The Deal Maker or Breaker

Here are the key items to look out for when you are analyzing the property

1] Disclosures

If the property is sold by an owner who has lived in the home, get the transfer disclosure statement and the seller property questionnaire. These two disclosures will spell out everything the seller knows about the property, especially issues relating to death in the property, water intrusion, insurance claims, etc. The seller is supposed to disclose all material facts that will affect the marketability of the property to future buyers. 

 

2] Property Inspections

Don't close a property no matter how attractive the price and the deal may look on paper without doing property, foundation, roof, and pest inspections. Wholesalers have the tendency to tie up deals without any inspections. Avoid the temptation of removing all contingencies without first investigating the property. Discoveries may come up during the rehab that may cost you an arm and a leg and you may then lose your shirt. 

 

3] Proximity to the Freeway

Houses are built along freeways everywhere and some of them have dual-pane, even triple-pane, windows. However, in the eyes of your retail buyers, close proximity to the freeway could be a deal breaker. We are not recommending that you stay away from properties that border the freeway.  Purchase them at a lower price than you'd pay for a property a few blocks away from the freeway.

 

4] Schools

The quality of the schools affects the value of homes. Two properties may be in the same subdivision but kids living in one household in the same community may be entitled to go to one elementary, secondary or high school and kids just one home, street or block away may be entitled to attend a completely different set of elementary, secondary and high school. If you don't do your homework in advance you may end up paying more for a property which you couldn't have paid less for had you known it belonged to the school with lower API scores, yet you were looking at comps for the entire subdivision.

5] City Ordinances

Zoning laws and city ordinances may affect the value of the property you are considering to buy. Some cities in the San Francisco Bay Area, for example, require the seller to perform sewer lateral and sidewalk clearance. You should make sure that the seller has complied or factor this into your cost. The same of true for zoning laws, which may work for or against you. For example, in California, Senate Bill 9 allows owners of 1-4 units to build more units on their lots. Does the property you are looking at qualify for SB9? If so, it could work in your favor.  Look at for easements and their stipulations. Scrutinize the preliminary title report to see if there are any easements.

5] Crime Figures

Crime rate, like school API scores, certainly affects property values. So whenever you are considering a flippable property do your research on the crime rate in the area. Websites like crimemapping.com give you records of crime within your stipulated time frame. Walk around the neighborhood to see what other owners are doing in the area. Is there pride of ownership or are there abandoned cars, unkept yards, junk, and debris everywhere? Are other investors buying and flipping in the area? They say birds of the same feathers flock together. They say the strength of the wolf is in the pack. Don't be the lone wolf. You want to buy the worst property in a good or up-and-coming neighborhood. You don't want to buy the worst property in the worst neighborhood.

 

6] The Formula

You can buy a defective property in a defective area, based on what we have stated above. However, you must follow our deal analyzer and never deviate from it. Never buy a flippable property for more than 80 cents on the dollar. The lower the price vis-a-vis after-repair-value (ARV) the better. Here is the calculation: If the ARV is $1,000,000, for example, don't offer more than$800,000 for the property. And if the cost of rehab is $100,000, subtract $100,000 from $800,000 and don't offer more than $700,000. Then consider the city where the property is located. Do they require sewer lateral and sidewalk clearance and is the seller paying for them? If not, include these costs in your DA. Are you buying all cash or are you getting a hard money loan? How many points are you paying? What's the interest rate and how long will it take to complete the rehab? Are interest rates trending upwards or downwards? What's the health of the economy? Are property values going up or down? What are your holding costs besides the debt service? How much are you paying for water and electricity, insurance, and other expenses? How about your resale costs? Are city transfer taxes applicable in that city? How much are you paying the listing and buyer's agents? 

 

 You must diligently follow steps 1-6 above if you want to be a very successful flipper. You make your money when you buy, not when you sell.  Yet, this is only one of the things we teach here in the Tribe. Follow it and you will do well. Join the Tribe today and each month we will meet on Zoom to discuss these matters live as well as transact deals on the spot. Join the Tribe now. 

 


 

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