Estimated reading time: 4 minutes, 3 seconds
Every Fall/Winter during the slower time of year, we at Levco like to spread our wings and remodel a home for ourselves. This is accomplished by buying a home fixing it up and reselling it in the spring. Call it hibernation or tool sharpening what have you. This year we will be rejuvenating several homes to make up for a few missing years.
The concept of flipping is not a new one, we just do it a little differently than most. In speaking with one of my mentors David Lupberger, who implored me, “Joe, there is no one better suited to add value to a home than you, why not do it for yourself?” I had already done 6 homes this way since 2001 with marginal success so I was looking for a system that works. One of David’s pearls of wisdom is to have a system and stick with it. I am gradually developing a hybrid that works for me, in the mean time we bought a couple that popped up on my radar and made sense for the current economic conditions. Buying them “right” is only one aspect of making a profitable “business adventure,” as I like to call it.
I love flipping homes!
The excitement is generated when we get the chance to make decisions for ourselves and try our theories without clearing them with a client. New materials get tested, new techniques and technologies get incorporated and someone gets to buy it in the end. My employees love them because they have input into the decisions and often get their recommendations incorporated into the project. “It is a win win for all parties.” says Dave.
This is the first in a multiple part series. I have decided to write regularly about how Levco flips homes because it is unique. You will get insights into our projects to explain how we think, work, and share how we add value to our homes.
Why flip homes in the first place?
There are lots of reasons to flip a home:
- Recycling the existing stock of homes.
- Starting all over requires eating up farm land in our area.
- Tearing down homes is often cost prohibitive or prohibited in historic areas
- Often years of neglect can be washed away with new finishes and a revised floor plan.
- We love older homes and have learned how to make them even better.
What is the trick to finding an appropriate home for flipping?
The perfect home for us is priced about 50% of the neighboring homes, and it is usually distressed. It has some structural flaw that can’t be easily fixed by the weekend warrior flippers. It is 30 years old or older, and has good bones and little or no mortgage left. It is near where we live and it has a vibrant neighborhood of well maintained homes near by.
With the flipping gold rush brought on by a slough of TV shows, the stock of flippable homes in this region is dwindling. One fellow I spoke with says there are several companies in our area that are flipping 50 homes a year. The feeding frenzy of like minded folks makes it more difficult to hit a home run. Good deals are still out there, we just have to be more creative finding them. In other words, we have our sources keeping an ear to the ground.
Systematization is Key
The trick is developing a system to locate, buy, fix, and sell these homes for a decent profit. David says it is a business model that works year round in up and down economies. My experience is similar to his, my timing was a little off. I went a little crazy a few years ago and ended up pouring a little too much money into homes that didn’t sell during the latest economic down turn. The good news is that if you have the gumption and system to rent out the homes in the event they don’t sell right away, you develop a stable of homes in great shape to rent.
The math has to work. The selling price should be slightly under the market value (to sell quickly). Then subtract the minimum profit you are willing to make. Next subtract the investment cost (purchase price plus holding cost plus sales commissions etc.) about 4%. Then you need to determine the investment to upgrade the home (remodeling cost, sweat equity). This will tell you if the property is worth investing in. Any additional unforeseen costs or savings will come at the expense or benefit of your expected profit margin.
The dream for me is to differentiate myself from the “Fluff & Buff crowd” by doing a deep renovation or a “rejuvenation” if you will, to a home and provide a healthy warranty. If all goes well, my clients will be getting a better than new home.