The pandemic may have upended our lives and disrupted our plans at its onset but we have found ways to bounce back from it and are slowly regaining our footing, especially for those in the real estate industry. 2021 has proven to be a good year, especially for house flippers, as more and more folks have chosen to leave city living and move to the suburbs. Flipping houses in California, especially, have become a very lucrative business venture for real estate investors.
If you’re looking for an opportunity to get into the house flipping market, you might want to consider flipping houses in California. Here are the things you need to know to get you started.
What Is House Flipping?
For the uninitiated, house flipping is simply the process of buying a listed property, fixing it, and then selling it for profit. It’s as simple as that. However, the entire process of flipping houses in California – or anywhere else, for that matter – involves more than just looking for, buying, rehabilitating, and selling a property. We wish it were as simple as going to a candy shop and selling them to your friends at a slightly higher price but, alas, it is not.
The definition may be simple but the whole process can be quite overwhelming and tricky to navigate, especially if you’re not well-versed in real estate and financial matters.
Why Is Flipping Houses a Good Investment for Beginner Investors?
Like any other investment, house flipping can be quite lucrative provided you have the right plan and strategy in place.
Someone once said that if you fail to plan, you plan to fail. When it comes to real estate investing, there is always big money involved so one cannot afford to not plan for it. Your main plan should always have contingency plans if you truly want to succeed in this type of business venture.
This is why newbie investors should take the time to carefully study what they’re getting into. It’s never just about having enough money to spend on a property. After all, not all real estate properties make for good investments. This is where performing due diligence comes in handy. Researching and gathering as much information as you can – for instance, which ones are the best cities to flip houses in California and what type of investment property is highly profitable in a particular area – allow investors to make the wisest decisions aligned to their goals.
Although it comes with its own risks like losses and added stress, these things can be avoided – or minimized, at the very least – with the right plan and strategy. The pros far outweigh the cons as long as you do your homework.
Here are just a few benefits that come to mind where house flipping is concerned:
It Can Give You Great Returns on Investment
As of 2018, the average profit investors make from flipping was somewhere around $65,000. Of course, prices vary from state to state and region to region but the general idea that an investor could go home with an additional five figures in their bank account is enough to drive a lot of investors into the house flipping business.
According to ATTOM Data Solutions, the third quarter of 2020 saw flipped houses selling at a median of $240,000 and bringing in a whopping $73,766-gross profit. Despite the decline in home flipping numbers during the pandemic, the profits have surprisingly reached new highs in 2020.
If a real estate investor can flip two to three houses annually and generate anywhere between $20,000 to $30,000 per transaction, he or she can match – and even exceed – his or her annual full-time income. Bringing the number of houses flipped to five and more a year could give one a hefty six-figure annual profit.
It Can Make You a Better Version of Yourself
Whenever someone decides to venture into the house flipping business, he or she walks away from it a better person. All of the time, resources, energy, and effort poured into the project will test one’s mettle and resolve. It makes one develop greater and more positive character, gain valuable experiences and life lessons, pick up new skills, and grow holistically as an individual.
You learn to do things better such as negotiate and network. Your patience, leadership, and problem-solving skills will be tested and improved. Your time management skills will be enhanced. These things, and more, can be easily translated into other areas of life. People who consistently flip houses end up not just updating properties but upgrading themselves as well.
It Can Be Very Rewarding and Satisfying
Investing in real estate properties to fix and sell can be quite an uplifting experience. It’s common among house flippers to get a strong sense of accomplishment whenever they take on an eyesore of a property and transform it into something beautiful for other people to start families and build memories in.
Yes, it may be time-consuming, expensive, and, at times, overwhelming but knowing that your work has a lasting positive impact on people’s lives is more than enough to make you look forward to the next project.
Why Invest in California?
Now you may be wondering, why California? What makes flipping houses in California different from all the other states? Considering that real estate prices and the cost of living in the Golden State aren’t exactly cheap, why should investors take their money to CA?
Remember when we said that while house flipping continues to decline, profit is hitting all-new highs? Well, California is presently showing itself to be a very strong and competitive buyer’s market. As home values went up by 2.6% over the past year, the median home value in California is now around $548,700. The current median price of properties listed in the state is $539,000 with the median price of sold homes at $493,100
The values will, of course, change depending on the area. For instance, the median home value in Fresno is only $212,700 whereas in the San Francisco area it is $1,194,300. Having the right information and data can help you make the decision that’s best for your goals and financial capability.
Flipping houses in California involves more than just knowing the cost to flip a house or where to buy a property in the state. You also need to consider other factors such as loan prospects, the number of available foreclosed properties, and the present condition of the buyer’s market.
- Loan prospects. Since California has pretty high median prices (more than double the national average), most lenders are willing to adjust their rates and give bigger loan limits compared to other states.
- Foreclosed property availability. The foreclosure moratorium in CA was already lifted which means investors have tons of choices available to them throughout the state.
- Buyer’s market. Living in the Golden State may not be cheap but people still continue to flock to it because it’s such a great place to live in.
How Will You Know if a California Property Is a Good Investment?
When it comes to flipping houses in California, one has to know that not all properties are created equal. Flipping homes in southern California, for instance, isn’t the same as fixing and flipping in other parts of the state, and vice versa. Although it is just one state, it is a very large one (the third largest in the country) which means that the location of the property will play a huge role in the overall numbers.
Things like culture, geography, tourism, livelihood, and population all affect how property values are priced. That being said, investors should take the time to study the area and carefully plot out a sound feasibility study to increase the chances of getting the best possible results.
A lot of time needs to be devoted to studying the market. It typically takes months of research before any investor can confidently proceed with their plans. Fortunately, technology has made the research process a lot easier, faster, and more accurate.
With the help of the right tool, like the ones offered by Mashvisor, investors can get all the data and information they need in a matter of minutes. Using tools like the Property Finder, Real Estate Heatmap, and Investment Property Calculator can help investors identify the best place to flip houses in California.
How Can You Get Started With Flipping Houses in California?
So, what does one have to do to get started in the house flipping industry in CA?
Set Your Goals
Any investor does not go into business without a clear goal in mind. Having clear goals allows investors to map out a more effective action plan to take them from where they are to where they want to go.
Research, Research, Research
Data and information gathering is the first step of how to flip houses in California, or anywhere else for that matter. While you don’t really need to be a renowned expert on the subject, you need to have at least a good understanding of the business and all the factors that affect it.
Make a Shortlist of Your Best and Most Feasible Options
Being the third-largest state in the US, you will find that you have tons of great choices for flipping houses in California. However, since we’re talking about one of the more expensive states to live in, the options that you have won’t always be suitable for your goals. Be sure to narrow down your choices to affordable ones that will offer you the best possible returns.
Look For Houses That Fall Under the Reo Properties Category
Since a lot of properties in CA are on the expensive side, we highly recommend looking at some real estate-owned (REO) properties list. These are more affordable properties that have fallen into lenders’ hands after borrowers have defaulted on their monthly mortgages. California ranks third on the list of the highest number of REO properties in the US so you will have a pretty good number of affordable houses to choose from.
Establish a Good Branding for Yourself and Make Your Presence Felt
Successfully flipping houses in California also involves making a brand out of your name and putting that brand out there for everyone to see and hear about.
At the end of the day, fixing and flipping will all come down to who you know. Make sure to introduce yourself to real estate agents, lenders, brokers, contractors, suppliers, and wholesalers as these people will be crucial to the success of your business.
Take time to also connect with the people in the community and neighborhood of the property you’re selling. They might have certain connections that can speed up the sales process or open new doors for you to step into.
Get Enough Funding for Your Project
Whether you’re buying a single-family unit or a bunch of multi-family rental properties, fixing and flipping houses will cost you money. Once you’ve narrowed down your options, it’s time to raise and gather the necessary funds to finance your purchase and its rehabilitation.
If you’re uncertain of how to go about the numbers, use an investment property calculator to help you determine the costs and potential profit of a specific property.
It is important to note that if the project cost is within your budget and you have enough cash for it, give some serious thought about investing with cash. This way, you are spared from paying interest rates for the entire time that you fix and sell a property. While loans may be helpful on certain occasions, the interests accrued might make an investor desperate enough to lower the selling price to the point of loss just to make a sale.
Both straight-up cash payments and loans have their pros and cons so take time to look closely at the numbers and be sure the bottom line is aligned to your goals as a real estate investor. Extensive research and careful planning will spell the difference between profit and loss for an investor.
Which Cities Are the Best Places for Real Estate Investors to Invest In?
For some of the best house flipping deals on this side of the Pacific, property investors can look into the following CA cities for low-output, high-return projects:
- Fresno
The significant growth of Fresno’s home values makes it ideal for real estate investing. If the return on investment is at the top of your mind, look no further than Fresno. There’s also the fact that it is the second-best city in the country for flipping.
- Irvine
This Orange County city’s tech powerhouse status has greatly contributed to its booming economy which has led to an increase in its median home value to $895,500, a 1.2% spike from last year. With numbers like these, investors are likely to see steady growth in the housing market and should anticipate some healthy competition as a result.
- Los Angeles
With an average of $135,000 profit per flipped home, LA is the state’s most profitable area for fix-and-flip businesses. Despite the high cost of living, people continue to flock to it as the lure of Hollywood glitz and glamour is hard to resist. As the county with the highest population in the state, investors will discover there is no shortage of both supply and demand for real estate properties.
- Modesto
One of the most competitive areas for fixes and flips in California is Modesto. Its thriving agriculture industry and proximity to Yosemite National Park bring in tons of people year in and year out. It’s a great place for real estate investors to put their money in as its agriculture industry rakes in workers looking for residential properties to buy while its tourism generates plenty of short-term visitors that need accommodations, like short-term rental properties, while they’re in town.
- Ventura
Lastly, with tons of great amenities that attract buyers from all over the country, Ventura ranked among the highest in the US last year in gross flipping profits making over $180,000. Its sandy beaches, social hot spots, schools, and other amenities make it an attractive place to live in for people from all walks of life.
Flipping houses in California may seem challenging for newbie investors and house-flippers but as long as you have the right data, the right strategies, and the right tool like Mashvisor, you’ll do just fine.