Fixing and Flipping Houses For Beginners Podcast Por arte de portada

Fixing and Flipping Houses For Beginners

Fixing and Flipping Houses For Beginners

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 On today's podcast episode, I talk about fixing and flipping houses and understanding how fixing and flipping houses works. When you want to fix and flip a house, before you get started it is important to understand who you are selling the house to. I always teach my students to look at a fix and flip in reverse - meaning understand who you are selling the house to first. Your biggest pool of buyers are going to be first time FHA buyers. Those first time home buyers are buying a home with just 3.5% down. The demographic of a first time home buyer is a couple looking to move from an apartment to a house. The average age for an FHA buyer according to FHA is 31 or 32 years old. The next thing you need to look at is affordability. A lot of beginners mess this up because they figure if they are going to be fixing and flipping then they may as well go for a higher priced house with bigger profit potential to make as much money as possible. I don't advise that you do this, because as you go up in price point there is a lot more risk. If you want to make $40,000 or $50,000 on a fix and flip, then fixing and flipping just two houses per year could replace your job. The type of fix and flip you should be focusing on is the entry level bread and butter homes that are affordable. You should understand that these are the types of homes that first time home buyers are looking for. If you are fixing and flipping houses to first time home buyers who your potential buyers are, and what they look like is all about affordability. The median household income in the U.S for a couple is approximately $70,000. Mortgage brokers say you should not spend more than 30% of your gross income on your mortgage so that works out to be around $22,000 per year. Let's round that up to $24,000 per year and that means that the average couple with the median U.S household income can afford a $2,000 per month mortgage payment. Imagine yourself as that buyer looking to buy a house with a $2,000 monthly payment. Use Google's free Mortgage Calculator, and calculate what the house price would be with today's 30 year fixed rate mortgage rate that would result in your having a mortgage of $2,000 a month. Maybe they can afford $2,100 or $2,200 or even $2,400. This is the price range you should be focusing on. This affordability issue is very important to understand. That is why you should look at in reverse focusing on your buyer (not you). As you go up in price there are less people that can afford a home. There are way more people that can afford a $500,000 home versus a million dollar home. And there are a lot less people that can afford a $500,000 home than a $300,000 home. Many people simply don't earn enough income to be able to afford a higher priced home. So if you are fixing houses to flip or sell to other people, then consider where your biggest pool of buyers would be. When you look at it this way, you realize how important affordability is. So the first thing you need to understand if you are looking to fix and flip houses is affordability You need to focus on finding a neighborhood or city or target market where houses are more affordable. Based on current 30 year fixed mortgage rates, A couple earning the median income of $70,000 per year can afford a home that is priced no higher than $250,000. You may live in a big city where prices are quite a bit higher than that amount. But if you move away 30 to 45 minutes, in most cities you will find other neighborhoods that are more affordable that are not as close to downtown. Imagine you are the buyer and ask yourself this question. If I made $70,000 a year, where could I afford to live? You may have purchased your home years ago, and it may have increased in price substantially so you may view your neighborhood as affordable. But what you need to understand is a new buyer, buying today is looking at today's prices (and today's mortgage rates) not what you paid. So a neighborhood which may have been affordable ten years ago is no longer affordable today. So the key question is where can they afford to buy based on their current income? Affordability goes hand in hand with understanding where people are moving to. You can look at demographic data from the U.S Census Bureau and companies like U-Haul that provide moving data to analyze where people are moving to. You are looking for cities that are growing, that have population growth, and that have job growth. For example, in the State of Florida, according to U-Haul more people are moving to the Melbourne, Palm Bay area of Brevard County than anywhere else in Florida. If you wonder why, look no further than affordability. People will move to places that are affordable where there are jobs. These places are growing. The Space Coast of Florida is a perfect example of this. It's more affordable than South Florida, the population is growing, and there are many jobs being driven by employers in the Aerospace Industry. So based ...
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