House hunting is a critical part of the flip. While a lot of people become focused on managing the design / construction phase, the buying phase is equally if not more important. If you don’t purchase the right properties, you’ll be unlikely to recoup your costs let alone ensure profitability.
How I evaluate potential investment properties
Here are a few things I like to consider when I’m house hunting for an investment property.
1. The cost analysis
I begin by looking at factors like market trends, price per square foot, and anticipated resale price. I check for undervalued homes rather than simply the cheapest homes available. If I have the ability to put in an additional bedroom or bathroom, of course, the value to the next homeowner rises significantly–as does the resale value. But I only look at those margins if there are no major problems with the location or the house itself (see items 2 and 3 below). It’s also important for me to estimate the projected rehabilitation expenses before I invest.
2. The general location of the home
As they say, with real estate, it’s all about “location, location, location.” I like to drive around the neighborhood and walk around the block. That way I can check out what’s surrounding the specific home via various points of entry. It’s lovely to find a small gem of a home in a desirable neighborhood with good schools, ample green spaces or parks, and other interesting landmarks nearby. I check the proximity to lifestyle and cultural amenities, as well. Luckily, in Denver, it seems there’s always something interesting right around the corner.
3. The house and property itself
Once I’ve done my market trends homework and my neighborhood research, then I can get into the fun stuff — the actual framework or “bones,” of the place. I investigate the property for spaces that can be expanded or made even more desirable. And I get busy vetting the property itself.
I like to look at things like these:
- the foundation
- the floors
- the roof
- access to (or potential for) natural light and views
- the number of repairs needed
- what is salvageable (or not)
- smells, strange spaces, or other unusual aspects.
Recently while I was house hunting for my next investment property, for example, I toured one home that was really *not* for faint of heart, as it was leaning dramatically. A sixth floor penthouse with a cute clubhouse sort of feel caught my eye, but it was a little pricey. I visited another place that would make a great teardown or redo, as it hadn’t been updated but was in an amazing neighborhood. And then, my favorite home had tons of natural light, really tall ceilings, and walls that I was already itching to tear out! So, we’ll see what happens next.
Flips are good for buyers, too
Yes, given my role, I’m always looking for a good investment. Buyers also benefit from a flip, though. Most homeowners aren’t experts in construction so they enjoy finding places that are move-in ready. They want places that are competitively priced and located in a good market. And they enjoy the cool updates and special features that my expertise can bring. It’s always my goal to make a flip a truly livable and enjoyable home for the next owner.