So
you have decided you would like to plunge into your first flip project. You have your financing in place, a list of
contractors you plan to use for renovations, and a solid budget. But in your first several attempts to get a
Charlotte home under contract, you found that you were not the only one seeking
a solid flip project. In fact, with
inventories of resale homes very low in the Charlotte area, you were promptly
notified by the sellers’ agents that there were multiple offers on each
property, and “highest and best” offer on each was due by a date certain. Gone was the notion that you could offer 10%
below the listing price. In fact, each
property you wanted to bid on ultimately went under contract ABOVE the listing price. Does this mean the time for house flipping has
come and gone? Of course not!
Any
business proposition involves risk. Most
businesses have to cope with competition.
Business cycles are as old as free enterprise, and seller and buyer
markets ebb and flow over time. Today’s
seller’s market may give way to a buyer’s market next year. Any business needs to be nimble and
pro-active. The overall goal in a flip
project is to resell a home quickly, for a profit. So what can help us accomplish this goal in
any market?
The
answer is the fundamental consideration in real estate investing: location. When looking for a good flip project in
greater Charlotte in a competitive “seller’s market,” identify geographical
areas—usually by subdivision—and focus on finding a project in one of those
communities. In a market where there are
likely to be multiple offers on attractive listings as soon as they enter the
market, it is likely that the buyer will have to find a home in fairly “rough”
condition and build equity into it with reasonable, cost effective
renovations. But there has to be enough
room in any given community for the finished product to worth more than the
cost of acquisition + renovations and carrying costs. The larger and more costly the renovations,
the smaller the end profit is likely to be, of course. So it makes sense to find an area of older
homes that may have been reasonably well maintained by their owners, but which
are in need of significant cosmetic updating.
I mean a home in which the roof and HVAC may be newer, but the kitchen
and baths have not been updated since the home was new in 1962. This will allow the buyer to concentrate
spending and updates more on things that are readily observable—cabinets and
counter tops… flooring and bathroom fixtures—and less on things that are less
likely to add to the resale value of the home in proportion to the
expenditures.
There
are communities near Charlotte’s city center in which these homes can be
found. They have become popular with
professional flippers, so prices continue to rise—even for the “old original”
homes before renovations have been done.
Charlotte has a modern, expanding light rail system to shuttle people
between home and its city center (called “Uptown”), and that light rail runs
near many of these communities. A
location near light rail is also a big plus.
The finished, updated flip projects are quite popular with younger
professionals who work in Uptown, where they might otherwise be attracted to a
high rise condominium residence. Such prospective end-buyers who prefer a
single family residence, with a small yard for gardening or entertaining, and
without the high monthly HOA payments a high rise condo usually requires, can
find a tastefully updated small home a very attractive alternative. And these buyers have the income and budget
for a high rise Uptown condo.
For
more information on suggested Charlotte communities in which this strategy has
been used successful, please feel free to contact us. As stated early in this article, the market
is constantly changing and a subdivision that worked well with this strategy
three months ago may not work so well three months from now. Our company motto is: “Solid analysis
identifies great opportunities.” There
is no substitute for doing your homework.
