Before you make the big profits in house flipping you need to know where to start! To flip a house profitably understanding your real estate market is key to success. Markets can change by State, town, zip code and even by street. You can profit in any type of neighborhood if you understand the value of the home after you have made all the necessary repairs this is also known as the after repair value or ARV. When the house is ready for resale you will be listing it for your predetermined ARV.
To determine the ARV one needs to look at the recently sold properties in the neighborhood of the potential flip. If you know a Real Estate Agent they can assist you by utilizing the MLS to pull comparable properties or you can use a multitude of free websites to determine the ARV yourself. I like to use Zillow but I do not use the Zillow estimate if it where that simple everybody would be doing it.
How I use Zillow:
1. Look up the property by address.
We will use 81 Carl Ave as our potential property.
2. Click on the property address to view the detailed property page
3. Scroll down on the right side of the page and you will see “similar sold homes
4. Click on “Similar Sold Homes”
5. Now a table of sold homes will appear
6. Sort the table by distance
To make an accurate determination of ARV you want to compare only similar homes. The homes should be very close in square footage, year built, sold with in the last 6 months and within .5 mile of each other. Secondly but not as important are number of bedrooms and the number of bathrooms. I give these a little less weight because if most of the sold homes have 1200 sq ft, 3 bedrooms and 1.5 baths and the home you are looking to purchase is 1200 sq ft 3 bedrooms and 1 bath I would just carry adding a .5 bath in my repair costs. At minimum you should have 3 similar homes, do not use short sales or foreclosures because these will skew your numbers.
The three homes we will use are:
101 Carl Ave, $170,000, 8/9/13, 1344, 1961, .06, $126/sq ft
105 Carl Ave, $164,900, 4/29/13, 1514, 1971, .07, $108/sq ft
29 Baker St, $175,000, 2/18/13, 1420, 1978, $123/sq ft
If you are not familiar with the neighborhood you should drive by the comparable homes to verify that they are similar. You can see there will be variances in your parameters but a visual inspection can help to justify any variances.
Now to finalize your ARV find the average cost per square foot:
(126+108+123)/3=119 now multiply the average by the square footage of your potential house flip.
ARV=1449*119=172,431 or $175,000 to keep it simple.
At first determining ARV can be overwhelming but the more you understand your market and the more you actually work the numbers the more comfortable you will feel.