After the birth of my son, I was ready to tackle “something new” in my life and career. So, I decided to chase down a wisp of an idea that has been in my head since 2014 and started a business flipping houses. It even has its own instagram where I share behind the scenes looks at what it’s like to be a real estate investor.
A common question (aside from “How do I start real estate investing?) is “How do you choose the homes that you buy?”
Which is really what people are asking, right? You already know how to start real estate investing …
But really, people want to know how to pick the right home that’s guaranteed to make a return as this is where the biggest source of anxiety is, especially for novice investors. Today I’m going to share how I pick the houses I invest in (in my own limited experience) and I hope you like it.
But first, a few disclaimers
If you’re going to be a real estate investor, you should first decide which strategy you’d like to use to grow your money. There a TON of different strategies out there, and I’m not going to go into them all, but here is just a sampling of the different kinds you can pick:
For me specifically, I do “fix and flips,” and what I look for in a home is going to be VERY DIFFERENT than what someone who wants to buy a home and turn it into a rental. (I can’t tell you how many houses I’ve seen where the numbers don’t work for me, but I’m like “this would be a good rental unit.”)
Second disclaimer is that what I’m looking for is specific to the area where I’m buying.
Therefore, you should become an expert in your target real estate area. You do not have to become a real estate agent to be an “expert,” in fact .. they teach you almost ZERO about locale-specific real estate in the licensing class.
You can learn more about your area by:
- living there
- reading a lot about the area
- staying up on the local news in the area, especially about real estate and business development
- spending hours and hours on Zillow to learn what is typically for sale in this area and how much it goes for.
It’s not a science. You just have to immerse yourself in it. And talk to people: other agents in the area, locals, business owners, you name it.
Okay, so here is what I look for when I’m flipping a house
So, when I have the money in my pocket and I am sitting down on Zillow and The MLS (multiple listing service), here’s what I plug in when looking for potential homes.
A specific size
I typically hunt for 3 bedroom, 2 bath houses. For me personally, I just think most families want more than one bathroom, and where I buy my flips, most of the homes have at least two. Data from the National Association of Realtors also shows the average home has three bedrooms at least.
A 2-bedroom home with more than 1300 square feet would also be worth a look because you could likely turn it into a (small) three-bedroom.
A specific spread
Spread: The difference between what you purchase a property for and what you can sell it for after you’ve fixed it up. Say, for example, you buy a home for $200,000 and after renovations you could sell it for $300,000. This means the property has a spread of $100k.
Okay, I’ll just say this even though I know other investors reading this will probably shit on it. Whenever I am looking, I try to find a spread of at least $100k between what I paid for it and what I data says I can sell it for.
I do this because $100,000 is a good bit of room to do a substantial renovation and still make some money (after closing costs and commissions), but these deals are really rare right now in the market like the one we are having during/post coronavirus.
I look for brick homes first (not saying I wouldn’t do a flip without brick, it’s just what I look for.) I find brick homes hold up better on the exterior, are less maintenance, and save a lot of money on exterior repair.
Okay, there you have it. A quick little primer on my personal real estate investing strategy.
And I am still a novice, so do not take this advice as gospel. Also, my strategy wouldn’t be your strategy and may not work great for your investing area.
Your real estate market may not even be great for fix and flips at all, so the bottom line and biggest takeaway from this piece is: Research your own area — extensively.
And then go back and do your homework again.