An essential skill in making a house flipping profit in the real estate business is knowing how to value a house properly. For individuals who are in the industry to make profits from low purchases. Here are ways to determine worthy homes to flip.
Average Value Determination: The house post-rehab value is determined by considering the cost of the houses in the general vicinity and the price of recently sold homes similar to the post-rehab vision. The final worth after repairs is the value you use for determining the worth of the house.
Standard cosmetic rehab: A general rule to estimate repair costs is $20 for every square foot. Based on this assumption, adjustments can be made upwards or downwards depending on the individual house’s specifications. This value will help determine whether to select the house for flipping.
Transactional expenses: Purchase closing costs are usually paid by the seller and account for 0.5 percent of the purchase price. The selling closing costs range between 1-6 percent, with an additional 1 percent as attorney fees. Holding costs such as property taxes, insurance, utilities, and maintenance costs should also be considered.
Offer price-setting- There are formulas to determine what offer price will be stated. One way is to get 70 percent of the average repair value deducting the repair costs. Another way is to subtract the repair costs, closing and holding expenses, and desired profit from the ARV to get the right offer price.
Geographical setting: Proximity to facilities such as shopping malls, transportation services, and school increases the property’s value while highways and airports decrease it. Different locales may have various school taxes, municipal and private trash collection companies with different days.
Physical attributes: As much as the seller wants the house to stand out, it shouldn’t be so significantly marked up in features that it overshadows the neighboring houses. It will only lead to a scenario where it will be too costly for that neighborhood. The most successful house flips are those that have the most work. However, if structural issues are suspected, it would be wiser to buy a house in better condition.
Lenders- Rehab lenders give between 65-70 percent of the ARV. This factor is because an investment is made with the anticipation of making money in the end. If the lender advises otherwise, then there will not be enough equity for the investing party to make money in the end.
Those who lived through the 1980s may well remember it as the decade of excess where bigger was better, and whoever died with the most toys won the game of life. The concept of living large may have continued for years were it not for the housing market collapse in the Great Recession of 2007.
Tiny Houses Make Their Debut
For all its disadvantages, the Great Recession also introduced the country to a wildly new way of thinking about housing. Suddenly, small (typically under 600 square feet) creatively-built, often whimsical homes called “Tiny Houses” began to get a toe-hold in the housing market.
Twelve-plus years later, tiny houses remain an attractive option. From an economic standpoint, they cost significantly less than a traditional home, and often buyers can outright avoid even carrying a mortgage. Additionally, many homes are available in kit form, an appealing choice for the growing DIY demographic.
Statistically, tiny homeowners carry less credit card debt. After all, with less room for storage, they simply aren’t going to buy as much. This creates the added benefit of being able to save more or invest in other more adventurous pursuits. Tiny houses also tend toward lower energy costs, a seductive sales point for the environmentally-conscious among us eager to lower their carbon footprint.
If not already a minimalist, deciding to live in a tiny house requires the paring down of possessions. Tough decisions must be made about what is needed, and what can be done without. It also requires making a pivot toward the concept of more open, functional, multi-use living space.
Partners and family members must also consider how their tiny house might impact their relationships. Even the closest of couples need their space once in a while, which can be a challenge in tight living quarters. Having a game plan about how to handle disputes or the need for alone time is an important consideration.
There are also residential zoning regulations to consider. Many towns have established minimum square footage requirements for homes, or restrict where they may be located. And if they are built on wheels, they may not be considered as permanent housing at all. Then again, having a tiny house on wheels offers its advantages, opening the door to travel and the freedom to live large in a whole new way.
The impactful strides towards economic recovery have resulted in an influx of millennial homebuyers. The ability to pay their debts and advancements on time through their careers has accelerated confidence in owning homes. In fact, the homeownership rate is four times higher than any other age group, making this a heated topic of discussion. According to projections soon, the smaller cities will run out of space, owing to the housing boom powered by this generation. However, millennials do not view homeownership as permanent as they change houses from now and then. Let’s review the expected millennials’ impact in the housing market:
No life of a millennial is complete without technology. It is not a surprise; most of them deploy technology in the process of buying homes. This has fundamentally changed the duties of real estate agents and brokers. As a result, the housing market has adapted to new marketing strategies and methods.
The standards of living in urban centers have soared, as the majority of the millennials nowadays are opting for suburban homes. Mostly rental market is the contributing factor to urban life audacities. Due to the many cost-conscious millennials, the housing market will have to shift for cheaper suburban homes.
As the economy continues to strengthen, the majority of the millennials will actively participate in the housing market. This will contribute to higher levels of competition in the housing market as investors strive for perfection to satisfy their customers. This means the commercial real estate investors will have to focus on new constructions rather than the “fixer-uppers.”
Transparent Information and Communication
Due to the housing crisis and frustrations, many millennials value having access to trustworthy information. Thus, the housing market will have to adjust to an airtight system of keeping the customers happy and mitigate the risks. This is only achievable through authentic communication mechanisms.
Millennials will continue to shape up the housing market according to housing dynamics. Their preferences will be significantly crucial to favorable housing market evolutions.
With more and more people flocking to popular towns and cities, combined with the increase of all things digital, Airbnb is a company that couldn’t have arrived at a better time in the digital age. In fact, there really wasn’t another time where Airbnb could have thrived in the way it does now. And while it has helped countless people make their vacations more affordable, as well as benefit those renting out their own properties, is it possible that this app has also brought some trouble to the real estate market along the way?
Property Owners are Catching On
Property owners are concentrated on buying properties in cities that draw large crowds of tourists. You may be wondering where Airbnb ties into this statement, but this is where it gets interesting. Current property owners and people looking to purchase property to rent out have grown keen to the fact that Airbnb can be a helpful indicator of places that are seeing a booming influx of visitors, which in turn signals to property owners that their city may very well be a hot commodity for all things hipsterdom and tourism
So, what has happened as a result is that many property owners are beginning to raise the prices of their rental properties in an attempt to capitalize on a bustling metropolitan area. Also, current property owners in cities where this is occurring are also optimistic as it provides them with a chance to sell for a much higher price than they bought.
Airbnb rental properties can be money-making machines. If you operate an Airbnb in a sought-after travel destination, you are likely to acquire a continual, large-sum of revenue each year. With this in mind, property owners have opted for renting their spaces out short-term for the whole year as opposed to on a long-term basis (short-term means more money). Now, since long-term rentals are becoming increasingly less available, this has pushed property owners into a heightened sense of competition, which in turn causes prices to go up due to demand.
Airbnb is a great tool for people looking for places to stay while vacationing and for people looking to make some extra profit. But if the invisible hand of Airbnb continues to increase the prices of the housing market, we may be headed for a destination that no one wants. The conversation on how to create and maintain sustainable housing costs while allowing people to continue their ventures on Airbnb is a dialogue that is certainly worth having, both for the tourists, locals, and property owners.