Flipping houses in California and in general is a fast-paced but thoroughly exciting method of making a profit. Flipping is an ideal process for those with the knowledge and ability to get a sale in the quickest amount of time. For some people, it can even become a full-time role. It offers a steady flow of income if the time and effort’s put in beforehand.
When it comes to flipping houses in California, the market is vast with wide scope for expansion. Here we look at the method of flipping houses in Los Angeles and California. Giving you a guide, we show you how to take advantage of this profitable real estate industry.
Flipping Houses in California – House Flipping Explained
Firstly, house flipping differs greatly from that of simply purchasing real estate.
The entire concept of flipping a house means the property’s bought to quickly sell it. This swift resale is what’s referred to as the flip.
Flipping’s considered one of the more lucrative of ways to get those good returns. Thus, the more houses flipped over a year, the obvious greater profit an investor can make.
But, alongside flipping several properties in a financial year, the location is crucial.
The Location of Property is Key in Flipping
Being aware of the location and its attraction to potential buyers is vital if you’re planning to flip a house.
Some people with no knowledge of real estate invest in property to flip because they can get it on the cheap. But it soon becomes clear several factors can lower the price for the property. Thus, they end up having a house that they can’t flip. This then means losing out on their investment.
This means before making any investment decisions, you need to look to specifics such as:
- The popularity of the area
- The immediate neighborhood around the property
- Any potential issues surrounding the property
- The prices of other properties in the area
- The state of the property in question
- Ongoing interest for houses in that area
- The time scale you have to work on the property
Flipping Houses in the California Area
One of the United States hotspots for residents and tourists alike, this sunny state is a property developer’s dream.
California combines forests, farmland, beaches, mountains, and desert areas. A 900-mile state, it’s also home to one of the most famous cities in the world – Los Angeles.
So, when it comes to flipping houses here, it’s not hard to see why the concept is so popular.
Alongside this, in recent years, the California housing market has been performing strongly. This has meant the value of most property has steadily increased in value each year.
Though this is good news for the real estate market, there are areas to be aware of when flipping here.
What to Consider Before Flipping a House in California
- Prices in California vary greatly depending on the region. So, some homes will run into the $1,000,000 mark, in San Francisco for example. Whereas, you’ll also find homes, in Fresno for example, selling for around the $200,000 mark.
- Houses in California flip well when the seller knows the target area. Some areas of California have better economies and more tourist pull. Some of the most current popular areas of California include Ontario, Sacramento, Modesto, and Irvine.
- Competition in the real estate market in California is high. This makes it all the more competitive in certain areas, meaning you’ll have to be thoroughly prepared when placing your offers.
- Before flipping in this state, you should look to the County Appraisal District website. This will be able to guide on whether it’s possible to make a profit off the house you’re considering beforehand.
How to Successfully Flip A House
If you’re interested in flipping houses in California, here’s a few tips to help you do so successfully:
1. Aim to flip your house using cash
As exciting as it is, house flipping is also a risky business. This is especially so if you’ve no prior knowledge or experience of it. Thus, its always recommended you flip any potential house with cash. If not, you’ll end up paying interest on the debt you take. Secondly, more problematic, you may put yourself in a dire financial situation where you flip out of desperation. This means cutting your profit by lowering your price.
2. Understand the property market
House flipping is fun – but it also has a serious business side that needs attending to as well. Without understanding the market, you run the risk of getting a bad deal on your house. This is because you won’t be equipped to identify a house’s potential value. Added to this, if you don’t know how to price a house you’ll ultimately lose out when it comes to flipping it.
3. Set a budget for your house flipping projects
It’s crucial to always know the budget you have to buy a house before you complete the deal. This price should also factor in repairs and any renovation projects. Surprise repairs can make or break many a house flip. Therefore, get the home inspected by someone who can tell you what costs you’re potentially looking at.
4. Keep your renovation projects financially smart
Unfortunately, some people with a lack of house flipping knowledge get carried away when renovating! Thus, instead of using existing features, they take on big unnecessary renovations. This can lead to paying almost half of what you’ve paid on the house itself. Sometimes it’s the small stuff that can make a huge impact here!
5. Make friends with the local real estate experts!
Never underestimate the knowledge and help a local real estate member can offer you during the flipping process. These are the experts who can provide more advice on making those smarter investments. Use their practical guidance and stay on good terms with as many local estate agents as you can. In time, such relationships will work in your favor.
The House Flipping Rule
Most house flippers like to work by a common formula when it comes to spending money on a potential property. The 70% rule is the most commonly used formula here.
70% Rule = Never pay more than 70% of the property ARV, minus the cost of essential repairs.
(ARV stands for the After Repair Value)
So, as an example, before you begin with your house flip, work out the figure of how much you can afford to spend on the property. Add to this the cost you foresee for repairs and possible upgrades.
Then use the 70% rule formula to ensure that you don’t spend any more on the properties you’re considering for flipping.
For example, say you’re looking at an area where house prices tend to fall within the $650,000 price tag. Then assume that all your ARV adds up to $20,000. By using the recommended formula here:
$650,000 + $20,000 = $670,000
$670,000 x 0.7 (70%) = $469,000
The 70% rule says you should be looking to spend no more than $469,000 to buy that house for flipping purposes.
Final Thoughts on Flipping Houses in California
House flipping in California is a lucrative process, provided you do your homework and groundwork before you put in any offers. This means:
- Working out how you will finance your flip
- Calculating what you’re willing to pay for on your flip
- Locating the best areas to perform your flip
Following these steps, it’s possible to work on those high investment returns. This will allow you to successful flip your next house in the sunny state of California – and make a good profit in the meantime.