Before flipping houses for a living I was and still am a licensed real estate agent. Being both a real estate agent and a house flipper definitely gives me a leg up when performing a house flipping market analysis, as I had years of practice estimating property value as a real estate agent before I ever started flipping houses.
As a real estate agent, I was able to hone my skills when valuing a property by learning what works and what doesn’t, how the real estate market affects property value, and how to quickly and accurately estimate the value of the real estate.
While there are many ways to perform a house flipping market analysis the below strategy has worked well for me over the years and has provided reliable and accurate results when performing a house flipping market analysis.
Reasons to Perform a House Flipping Market Analysis
As a house flipper, there can be many reasons you might want to perform a house flipping market analysis. Because of this a house flipping market analysis can take many shapes and forms depending on what information is needed.
Below are some common reasons why a house flipper might perform a real estate market analysis.
- Determine the after repaired value or (ARV) of a home.
- Figure out a fair offer price based on the current condition of the property.
- Determine if a particular property makes a good candidate to flip.
- Discover the potential profit from a house flip.
Key Elements of a House Flipping Market Analysis
When performing a house flipping market analysis there are three key elements that you must pay attention to in order to accurately analyze a potential house flip.
Comparables
Current and accurate comparable properties are the lifeblood of any good market analysis. In order to accurately analyze a house flip properly, you must have access to quality comparable properties.
Several different types of comparable properties can be used when analyzing a property including active, pending, and sold property. While all of these comps can provide valuable information the most important of these are the sold comps.
While knowing what active properties on the market are asking can help you to determine a potential list price, there is no more accurate value of a property then sold comps.
When real estate agents evaluate property they use the MLS or multiple listing service to provide the comparables needed but what if you’re not a Realtor?
Luckily there are few different ways to obtain the comps needed for a house-flipping market analysis.
How to Find Comparable Properties
The first is to simply become a real estate agent, as many house flippers have gotten their real estate license and paid the fees just to have access to the MLS.
However, this may not make sense for most people as it’s both time-consuming and costly to obtain and maintain a real estate license.
The second way is to use the services of a real estate agent to provide the comparable properties that you need to perform your analysis. This does have its drawback though because as a house flipper you will more than likely be performing hundreds of these analysis’s overtime and having to constantly ask your real estate agent to pull comps for you can get frustrating pretty quickly for both you and the real estate agent.
The final way and perhaps the best way for most house flippers especially when getting started is to use the internet to find the comps needed. While the internet won’t be able to provide as thorough or accurate of comps compared to the MLS, you can usually find enough comparable and information on the internet to perform a house flipping market analysis.
Property Details and History
When performing a house flipping market analysis it’s important to learn everything you can about the property and its history. Not only do you want to know the basics of the house such as the number of beds and baths, square footage, and year built but also the intricates of the house as well. When diving deep into the house property details you want to know things like whether the house is connected to a public sewer or is on septic, what type of heat source the furnace uses, and whether or not the property is in a floodplain.
Property research doesn’t stop at just the current details of the property either but also includes the history of the home as well. When looking into the property’s history things to look for can include the number of times the home has been sold and what it sold for if there have been obvious alterations or additions to the house where the proper permits pulled, has the house every had an issue with contamination such as methamphetamine production or mold.
Local Government and School Districts
Local governmental policies and taxes, rezoning, and school districts can have a major impact on a home’s value. When performing a market analysis learning as much as you can about each of these categories is critical in order to have a thorough understanding of the house and its value.
Performing a House Flipping Market Analysis
There are three steps to a house flipping market analysis in order to get an accurate picture of the property as well the before and after repaired value of the home.
Step 1 – Walking the Property
The first step to any house flipping market analysis is to visually inspect the property. When walking the property there are several items that you want to pay attention to. The first thing to take into account is the overall curb appeal and feel of the property. How does the home look from the curb, are there things that can be changed to improve the curb appeal? When inside the home does the house have a good flow or do you feel cramped? Are there things you could change in the interior that would provide better flow and open the home up?
When inspecting the home the next item to pay close attention to is the property condition, make sure to thoroughly inspect the property. In the beginning, as a new house flipper its helpful to make a property condition checklist to make sure you don’t miss or forget to look at something when visually inspecting the property. Important items to check out during a property inspection include the roof, doors and windows, HVAC, electrical, plumbing, kitchens and baths, foundation, crawl space, attic, basement, and property drainage.
When inspecting the condition of the home make sure you are keeping a running tally on the cost of not only the cosmetic fixes you plan to make to the home but also major repairs the house the might need as well such as new plumbing or a new roof. If you don’t know what items will cost in regards to home remodeling and rehab make sure to bring someone along that does.
Writing down all the repairs and updates you plan to make to the home while physically at the property will help jog your memory later and help to formulate a budget for the house flip.
Step 2 – Determine Property Details and Pull Comps
After you have walked the property its time to learn everything you can about the home and pull comparable properties to use when evaluating the house flip.
Property details and comparable properties can be obtained from a variety of sources including tax rolls, property appraiser websites, real estate agents, MLS, real estate search engines such as Zillow or Realtor.com, government websites, and FEMA flood maps.
In order to perform an accurate house flipping market analysis, it’s critical to have accurate and reliable information to evaluate the home with.
If the information is inaccurate that you are putting into your analysis the results you receive will also be inaccurate.
Step 3 – Putting it All Together
Once you have walked the property and done your research it’s time to finally put it all together. While you can use all kinds of elaborate spreadsheets or market analysis tools, I find the best approach as with most things is to keep it simple. In my opinion, when performing a market analysis the best thing to use is a blank sheet of paper or a word doc to collect and organize all the information in order to form an opinion of value.
As with anything the more house flipping market analysis you perform the better and faster you will be able to perform them. A lot of the analysis I do now is up in my head or on the fly but I have also been evaluating property for more than 10 years and have evaluated countless properties.
Breakdown of a Real Estate Market Analysis
- Walk the Property – Do this to get a feel for the property and to figure out a rough estimate of the repairs and costs to rehab the home.
- Figure out Property Details and History – Know the basic stats of the home such as the number of bedrooms and bathroom, square footage, year built, etc… As well as any other factors that might affect the value of the property such as school districts, property taxes, and the history of the home.
- Pull Comparables – Find at least 2 or 3 active or pending properties to gauge a possible asking price for the flip once complete. Find at least 3 sold comps, the more the better to figure out what comparable homes are actually selling for and how much you might be able to sell your flip for.
- Put it All Together and Work Backwards – Once all of the above information is obtained its time to put it all together. Start by coming up with an estimated range that the property could sell for once the rehab has been completed using comparable sold comps. Then come up with an estimate of the amount of work the property will need as well as the cost of those repairs. Then figure out the profit margin you want to make, based on the amount of work and risk involved. A good minimum profit margin for a house flip is 30% of the sales price. Finally, subtract the cost of the rehab and your desired profit from the price you plan to sell the flip for to determine the amount you can offer for the property.
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