Real Estate Blog

Your first goal -- really your only goal -- is to limit your buying to densely populated areas with strong appreciation. Screw up in your choice of location and purchase price, and your adventure in flipping is sure to head south fast.

It's true that you'll have more opportunities to find housing when you get out of the downtown area, but there's more demand on housing in Central Austin than in outlying areas. Again, you're thinking in terms of the land. Go where land is scarce.

If a home buyer is looking to stay in one school system and ten minutes away there's a resale house, but 20 minutes away there's a brand new house, you, as the seller, will feel the pull of the brand new house over your resale.

As an investor, you're looking at picking up a flip that is about 60% off your ARV (after repair value.) Outside of Central Austin, those are hard to come by.

Let's say you do find a property outside Central Austin where most of the homes are selling for $200,000 and you locate a beater for $150,000. Work the math all the way out to the end. You buy the house. You put $25k to $30k into it. Sure. You make a profit, but not enough profit.

Those are the kinds of homes Mom and Dad moving out of Central Austin snatch up and make the repairs and upgrades on their own over a couple of years. If you're looking out there with the eye of an investor, don't even consider doing a rehab and flip unless you can get the property for $120,000.

Profit margin is always the key when you look at a flip. You have to weigh your ARV against the asking price and do the math. -- Always do the math. -- If you can't buy the property at 60% under what you think you can sell it for after repairs, then the profit margin isn't big enough for the time and effort -- and headache -- involved.

There are lots of mistakes you can make flipping: buying sight unseen, buying too many properties at one time, underestimating your costs, working with a contractor your friend's cousin Luther told you about who is "kinda licensed." Those are topics for another day.

The big sin -- the original sin -- in flipping is paying too much with no eye toward your profit margin. To avoid that, you watch your area and figure out how location affects appreciation. Everything else grows out of that choice.