Curbed University is in session today with a primer on whether or not to enter the fray of fixing and flipping houses. A few years ago this had reached feeding frenzy proportions in the District given the buyer-friendly mortgages followed by the first time homebuyer credit. Those swinging times have largely died down but there are still plenty of rundown homes in the city that could use the grit and sweat of an energetic flipper. Curbed spoke with a few developers active on the local fix and flip scene to get some of their thoughts on what most first-timers don't think about when they take the plunge. We've got the five most common themes listed after the jump.
1. Most newbies to the fix and flip game mistakenly think that the condition a house is in is the biggest determinant of profit. Not true, say experienced developers. Before you even look at the building itself, look at the mini eco-system it exists in. Is it on a block with a bunch of rundown houses? If so, it won't garner as high a resale price than a situation where the other homes on the block are already desirable places to live. But then, timing is everything. If you can afford to, buy the fixer-upper on a bad block and hold onto to it until other developers have come in and upgraded the other houses. Then it will be time to sell.
The best flips are the cheapest houses on a block where every other house is in good condition.
2. If the other houses on the street are in good condition they will be the biggest predictor of what kind of price you can get for a flip on the same block. Let's use a generic example of a fixer-upper that costs $400,000 in a popular neighborhood. If the other houses have sold (or are appraised for) between $600-$800,000 then that is the upper limit of what you should expect to get (major exception is if your lot has considerably more land). This gives you an idea of how much to spend fixing up your house while still leaving enough of a margin to make a profit.
Don't spend more fixing the house than the local market will bear (by 'local', we mean the surrounding neighborhood).
3. The next thing to think about is what type of buyer wants to live in that neighborhood/location. Is it near a coveted elementary school, dog park, and organic grocery store? Then we're talking a buyer who wants, amongst other things, a high-end kitchen (with granite countertops?). Is the house right next to a Metro station and/or on a street with an active nightlife? Then you're talking about younger singles who want bike storage and will sacrifice yard space for an extra bedroom. Every single one of these impact the price.
Before becoming the buyer of a fix and flip predict who will buy it from you.
4. Okay, now we can finally get to the property itself. Cosmetic finishes are always the ones that inexperienced flippers can muddle through without making too many mistakes. But beware the parts of the job that aren't obvious. Paint jobs are easy, wiring or major plumbing jobs are not. Here are the topics that come up the most frequently:
1. Termite damage
2. Sewer hook-up
3. Foundation problems
4. Mold
5. Lead paint
6. Antiquated HVAC systems
It's what you can't see that will cost the most to repair.
5. Time on the market should be as short as possible. Another mistake first-time flippers make is to wait until the house is finished before showing it to buyers. Let them in a little earlier to shorten how long the house goes between sales. One caveat: don't let them in so early that they'll think they can start dictating the decisions and changing things around. In a rising or tight market, like DC will be in for at least the next few years, a house will still attract a buyer even it it isn't staged and pristine.
Embrace the Pardon Our Dust type of tour.