House flipping is a popular way for savvy investors to turn a significant profit in a couple of months. But it can also be an investment pitfall if you don’t know what you’re doing.
Thankfully, figuring out if you’re on the right track doesn’t require a complex equation if you understand the rule of thumb for renovating fixer-uppers. Is house flipping still worth it in 2024? Stick around as the article dissects that question with the time-tested tips savvy investors use.
Rule of Thumb for Flipping Houses
Use the 70% Rule
The 70% rule is by far the most popular metric investors use when flipping houses because it’s pretty straightforward. It suggests that you shouldn’t pay more than 70% of the after-repair value (ARV) of the property you plan to flip. In other words, it’s not enough to select a random dilapidated house and throw money into fixing it with the hopes of reaping a reward. Before you so much as buy a bag of cement or put in a loan application, you have to do your homework.
Evaluate how much value your renovation can add to the property in its current state, and how much profit you stand to make when it goes up on the market. While it might be difficult to get the exact price, you could do a lot with an accurate estimation.
To illustrate this point, if you find a house in a good location worth $250,000 and estimate that you can spruce up the property and resell it for $310,000, that would be a bad deal.
Despite having an extra $60,000 in your pocket, such a profit would pale in comparison to your repair and loan repayment costs because the purchase price is worth over 80% of your ARV. So using the 70% rule, at $250,000, you should be able to make a minimum of $357,000 post-renovation.
Know the Market
We cannot overstate the importance of knowing the market in the house-flipping business. Staying abreast of the latest developments and trends can help you make crucial decisions. For example, the only way to utilize the 70% rule accurately is to have a good grasp of the housing market. Winter tends to be the slowest time for house sales, and many property owners have to mark down their prices to avoid holding onto an empty house.
Thus, if you use summer prices to determine whether you should seize an opportunity, you could be stepping on a landmine. So to avoid making the wrong financial decisions, it would be best to consult with an expert hard money lender in Baltimore before planning your house flipping project. These lenders have a better idea of trends that affect property values, and can give you sound advice on which properties to invest in and how much to spend on renovations.
Factor in Unexpected Costs
Give yourself some room to counter the unexpected. Renovations hardly ever go according to plan, and the last thing you want is to run out of money mid-project. Thus, instead of letting small fees like work permits or extra materials throw you off, create a budget that includes contingencies.
Besides, having a financial safety net allows your remodeling projects to go as planned, even if unexpected costs spring up due to hidden structural issues or unforeseen labor and material problems.
Avoid Holding for Too Long
When it comes to flipping houses, time is money. While some investors prefer to hold properties and resell them for more profit when the market is more seller-friendly, you have to be strategic. Remember that the longer you hold a property, the more taxes, mortgage payments, and utility bills you have to pay.
If you decide to flip a house in winter, where house prices and renovation costs are lower, holding it till spring might not be much of an issue. But if you want to flip a house in late summer, and miss the seller’s market you could be looking at holding for another 6 months just to break even. So carefully plan out when the best time is to flip a house and keep to your timeline judiciously.
Is House Flipping Still Worth it in 2024?
Real estate is a stable asset in the long run for investors who plan to hold onto it for several years. On the other hand, for house flippers who plan to purchase, rehabilitate, and sell a property in a couple of months, it can be volatile. Since the real estate market can vary widely from year to year, it would be best to get a good sense of where it is in 2024 before you dive in:
The 70% rule in house flipping is also called the golden rule of house flipping, and that applies this year as well. With a rise in home prices this year, renovating a fixer-upper looks a lot more promising than in 2023, especially if you can lock in houses at low prices. Besides, incorporating modern upgrades that improve energy efficiency and tenant convenience can also boost your resale price, earning you more profit in the long run.
Conclusion
Is house flipping worth it in 2024? There are several factors investors need to consider before answering this question definitively. While rising home prices seem to indicate that 2024 will be a good year to renovate fixer-uppers, you still need to apply a strategic rule of thumb for flipping houses. Understanding the market and applying the 70% rule are excellent ways to determine if a project is worth the trouble. Also, don’t forget to factor in unexpected costs.
