Many homebuyers are looking for a turn-key property that’s move-in ready. Buying a home with little to do to it is very attractive, especially for the millennial demographic.
But many of these newly renovated homes are being sold by investors who gutted the home in an effort to make a profit off of buyers. In 2015, the average gross profit on flipped homes was $55,000.
In many cases, flippers will just make simple cosmetic changes to make the home look newer and more up-to-date. A fresh coat of paint, sanded and re-stained hardwood floors, and refaced kitchen cabinets can go a long way in improving the esthetics of a home. In other cases, structural changes and major renovations are tackled, which is a good thing, but only if these jobs are done properly.
House flippers are in the business to make a quick buck, but that doesn’t mean you have to overfeed their wallets, nor fall for the dreaded “money pit.”.
Here are some ways to make sure you’re getting a good deal on a good home.
Identify a Flipped House
If you want to make sure you’re getting a decent deal on a home purchase, you want to know if the home is being flipped in the first place. There are a few telltale signs that you’re looking at a flipped house. A vacant home that’s been professionally staged is one sign, as is brand new landscaping. Other common signs of a flipped home include the presence of trendy yet cheap finishes, as well as the installation of new laminate floors.
Other than these physical features, you’ll also be able to identify a flipped home by looking at the property records. Your real estate agent will be a big help in this department. Checking the previous listings on the home will show you how long the seller owned the home, and what the previous sale price was. If the property was purchased less than a year ago, it’s probably an investment for the seller.
Pay Close Attention to Details
Cosmetic updates might look nice, but who knows what they’re potentially covering up. Don’t just assume that because the place looks good, the guts are in perfect condition.
Don’t be afraid to root around in the home to see if there is anything questionable being covered up. Look under sinks at the plumbing and check for any wet pipes or mineral buildup. Check out the foundation to see if there are any structural defects that have not been addressed, such as sticky doors and windows, slanting floors and walls, or major cracks in the foundation.
Identify if any of the work was done on the cheap and rushed through. Nice finishes may seem legitimate, but they could just be steering your attention away from any sloppy work. Signs of shady workmanship can include gaps between tiles, electrical outlet plates that aren’t flush with the wall, or baseboards that don’t completely meet at the corners.
Find Out if the Work Was Done With Permits
Just about every type of work being done in a home needs to be done with a building permit in order for it to be deemed legal. If the listing claims that everything in the home is ’new,’ you’ll want to see the paperwork to support the fact that the work was done with permits.
If no documents can be shown, you might be asking for trouble. If any of the work was done without a permit, it could be unsafe. And if the house doesn’t meet code, you might even have a tough time getting financing or home insurance.
Order a Home Inspection
Never skip a home inspection. Even if the home seems brand new, it’s still not a good idea to forego this crucial step. While you may have done your due diligence to check out all the details of the home, professional home inspectors have the training and experience to find issues that you may have missed. They’ll check the quality of the contractor’s work, and will be able to tell if any corners were cut.
It’s worth paying a few hundred bucks for some peace of mind.
Assess the Home’s Fair Market Value
This is again where a qualified real estate agent is an invaluable part of your team. Sure, today’s homebuyers tend to be very well-informed, but there are some details involved in determining the market value of a flipped home, and therefore coming up with a fair price.
While the previous sale price is an important factor to look at, don’t place too much emphasis on it. Flippers are obviously in the business to make money, but it’s tough to pinpoint exactly what their margins are just by finding out how much they paid for their properties. You’ll need to factor in how much the renovations cost, the closing costs, and if the property has appreciated in value since that last sale.
Your real estate agent will be able to pull a list of comparable homes in the area that were recently sold, and have many of the same features that the property in question has. The sale price of comparable homes in the current market will help you figure out if you’re getting a good deal or not. A realistic assessment of the prices of other flipped homes in the area is necessary.
Buying a flipped home can turn out to be a good deal for both you and the flipper. But, as always, due diligence on your part is necessary. Taking a few steps before signing on the dotted line could land you a great house at a fair price.