Sales of both new and existing homes are on the rise—welcome news for fix-and-flip investors. And television series have given bravado to novices. The shows make flipping look easy, but it’s far from a walk in the park.
Flipping’s main objective is simple: buy low, sell high. On my forthcoming HGTV show Flipping Virgins (a spin-off of my show Property Virgins), I teach first-time investors how to identify ideal properties and make renovation choices that will yield the highest profit. As a Realtor who got my start in property turnovers, I’ve developed a time-tested formula for success: a third, a third, a third.
- Property acquisition Spend one-third of your targeted final sales price on the purchase.
- Renovation costs Before closing, get a hard estimate of renovation costs, also a third.
- ARV (after-reno value) Make sure your Realtor runs a market analysis on the property to determine its value after the proposed renovation. The difference between this and your all-in costs will be your profit. Ideally, this is another third.
The uglier the house, the bigger the profit potential. Rehabs can range from basic improvements, such as painting and reflooring, to full gut jobs or reframing an entire house, which can cost anywhere from $60 to $120 per square foot. A major kitchen remodel can cost $50,000 or more.
Where do you find properties with profit potential in Atlanta? We are seeing tons of flipping action in Kirkwood, Reynoldstown, and Edgewood. East Point is also starting to bubble for investors.
Ideally, you want to sell the house before the first mortgage payment is due. Holding property incurs hefty costs: insurance, utilities, interest, taxes, mortgage payments. Be sure you have enough savings to carry your project to completion. And tempting as it may be to install upgraded finishes, do only what the market requires. No Chastain Park finishes in a Candler Park bungalow.
This article originally appeared in the Fall 2015 issue of Atlanta Magazine’s HOME.