03 Sep Diving a Bit Deeper Into House Flipping: Understanding the “Buying” Pillar
Diving a Bit Deeper Into House Flipping:
Understanding the “Buying” Pillar
In a previous blog, we showcased the fundamentals of the house flipping process, covering everything from the raw definition of the term and why it’s often times misunderstood to what is known as the “Four Pillars” that comprise the four basic parts of the process – from beginning to end. Because there was only so much space to work with, and because to analyze the ins and outs of each pillar is a daunting prospect for one blog post alone, we are going to dedicate this new entry in our blog series of flipping houses to expanding on our explanation of the “Buying” pillar (and then explore the other pillars in following posts).
Let’s recap for a moment:
In the previous blog, we outlined what the Four Pillars of house flipping are – Buying, Financing, Rehabbing and Selling – and explored the four sub-areas associated with the buying process as well, which included Inventory, Farm Area, Deal Analysis and Acquisitions/Buying Methods.
We explained that knowing how to find, analyze and buy houses is the single most important skill you can acquire when it comes to flipping homes, and how it’s possible to create a business of your own based on this one skill alone.
Now, follow along with us as we delve deeper into the details of the Buying pillar, being that you should have a good basic idea of how the flipping process works based on our previous blog. And if you are getting your feet wet in Huntington Beach real estate, this is going to be the slice of advice you’re not going to want to miss.
Buying Huntington Beach Homes to Flip: What You Need to Know
Okay, so we had stated in the previous blog about flipping basics that if you are just starting out, your best bet is to focus on a standard house with three to four bedrooms and probably anywhere from 1,200 to 2,000 square-feet, with a standard “entry-level” price range. Let’s now explore why this is a good move in some greater detail.
If most of the houses in the area you are buying are around 1,500 square-feet and priced around $600,000, then you probably don’t want to buy a 5,000 square-foot $3,000,000 house or a one-bedroom 500 square-foot house as your first investment deal. You will also want to focus on houses that are “distressed” or need work and updating, but we wouldn’t recommend buying any property that needs really major work for your first purchase; you may want to stay away from any Orange County real estate or Costa Mesa real estate that demands structural or major changes, and instead focus more on houses that need cosmetic or basic repairs/updating.
Additionally, as more beginner advice, we would recommend not buying anything too old, either; your best bet is to start looking at houses originating somewhere between 1950 and 1990.
When it comes to “farm area,” being familiar with the place you focus your efforts when buying houses can provide a great advantage – you will know the neighborhoods and streets, as well as what is expected to be done to those properties with regard to increasing value. We cannot overemphasize the importance of really getting to know your farm area and the value of houses in that area throughout your investing foray – and especially when you are just getting started.
The key is to pick an Orange County real estate area as close to you as possible; it could be the city where you live or work, and if you live in an area that you don’t think would fit the inventory you are focusing on, you could pick a surrounding city or area. But try to keep it as “close to home” as possible.
In that first blog, we also explained how deal analysis is the key to flipping houses, and how if Buying is the first pillar of flipping then deal analysis is the cement from which that pillar is made; basically, the goal behind analyzing a deal is to first establish the ARV (After Repair Value), which is the price the house will sell for once you have completed your rehab and improvements to bring it up to “retail” condition. Once you know what the property can sell for, you can work backwards and subtract repair costs, closing costs, holding costs and desired profit in order to establish your offer price.
Finally, in the area of buying and acquisition methods, one of the most common questions we hear is: “Why would someone want to sell Huntington Beach homes to me for a discount?” Well, the list of reasons is a long one – it could range from inheritances and bad tenants to relocation or wanting (or needing) to “cash out.” For now, just know that there are a myriad of reasons why you may be able to purchase such Huntington Beach homes for less than their “retail value.”
Keep your eyes peeled for the next blog in our flipping series, which will focus on Financing!