What Investors Need to Know about Selling a House by Owner
How to Sell a House by Owner – The Investor Perspective
Many homeowners search for how to sell a house by owner, but what about investors? You would think investors have the FSBO thing down, but we find many still have questions. It’s okay. Flipping homes for profit
Here are a few interesting house flipping stats:
- Approximately 207,000 homes were flipped last year, the highest in a decade
- The number of people or companies flipping homes is at a 10-year high
- 65% of flippers used cash to buy homes in 2017
- 63% of flippers leveraged financing from 2004-2006
- The average gross flipping return on investment in 2017 was 49.8%
If you’re an investor wondering how to sell a house by owner the right way, we’ll break it down for you so you can avoid common mistakes and get the most return on your investment.
H3: Related: MLS Access for Investors: What You Need to Know
When it comes to real estate, everyone knows it’s all about location. Experts agree, location is the single most important factor for profitability in real estate investment. But what does that mean, exactly?
Location isn’t always about being in the finest neighborhoods with the best schools. It can also be about finding that diamond in the rough where the neighborhood may not be the nicest, but it sits in a prime location where commercial development is growing. It can mean it’s nestled in an area of town that provides an easy commute to downtown, corporate or tech hubs, medical centers, a college campus, or a new development.
When looking for investment properties, know your market. Understand local infrastructure to determine the neighborhoods that offer the easiest commutes. Make friends with city developers to find out where new office complexes, desirable shopping centers, hospitals and other area attractions may be planned. Talk with real estate agents to keep tabs on the market – where they are seeing increased interest.
Just because you find a great neighborhood with lots of potential to make a profit doesn’t mean you will actually get a hefty return. Once you know the areas on which to focus, you have to get more detailed to learn about that particular neighborhood.
What are the area comps? Obviously, the key to selling a house by owner is to buy the house at the lowest price possible and sell it for the highest price possible. If you find a potential house to flip, be sure the asking price is one that will provide you with enough margin to make it worth your investment, no matter how great it appears. Take into consideration all of the current features and bright spots, then consider what costs you may incur to fix it up enough to warrant asking a higher selling price, then compare your imagined selling price with going rates for similar homes in that area.
Even if you find a house at a great price, it may need so much work to get it up to the standard to sell at a higher price, that it’s not worth the time and money. It’s more than costs you must consider. It’s how long those improvements will take. For every day you still own the house, you can subtract that daily mortgage price and bills from your profit. Big fixer upper prices can mean months of labor, particularly if you don’t have a reliable crew.
Related: Common Mistakes Investors Make When Selling Their Flips
Every home has its own intrinsic value. Even if it’s falling apart at the seams, there is something redeemable about it, perhaps only the ground it sits upon. The more quality features already in the home, the fewer upgrades you’ll have to put into it. But those features come at a price.
When evaluating a home to sell by owner, be sure to take a licensed contractor or inspector with you. They will be able to determine the quality of the home. Are the “bones” good but the design is poor? Are there lots of repairs that would have to take place before the more visual upgrades can begin? The last thing an investor who is selling a house by owner wants to deal with is a money pit. Take a pro with you to inspect beams, walls, electrical and plumbing integrity, roofing, decking, pool and equipment, drainage, foundation and other house features that can eat up a budget in a hurry if they need repairs or replacement.
- Minor bathroom remodel – 102%
- Landscaping – 100%
- Minor kitchen remodel – 98.5%
- Exterior improvements – 95.5%
- Attic bedroom conversion – 93.5%
Investors aren’t interested in natural appreciation. Natural appreciation takes too long and is completely out of the control of the investor. They want to force appreciation so they can make the most money as quickly as possible. That means making improvements to a property to add instant appreciation. But what projects are worth the money? The average ROI for the top 5 projects is:
Speed is everything when you flip. Find contractors you can depend on to have crews available when and where you need them. If you give them enough steady work, they’ll prioritize your projects.
As an investor, you may know how to sell a house by owner, but do you know how to sell many houses at the same time? The real money is in the volume of houses you own. You can buy a single house, fix it up and sell it for a profit, but to make flipping homes a true money maker, you should consider flipping many homes consistently.
By adding volume, investors can reap several benefits. First, you are more likely to score a crew of workers. They are basically your crew and at your beck and call, showing up when they’re scheduled so you can sell the houses faster.
Secondly, the more homes you have, the less of a problem a money pit, a lower house sale than you expected, or a bigger project that takes longer will impact your bottom line. It’s like having investments in a mutual fund rather than a single stock. You’ll be less likely to feel the pinch when one house doesn’t get you the return you hoped.
Finally, with every flip, you learn. You learn more about location, which projects are worth taking on, which amenities pay for themselves, how and where to save in certain areas and invest in others to get the biggest impact.
The market is ripe for investors to buy and sell houses by themselves. Be smart about the houses you choose, what upgrades you deem worthy, and how many houses you can juggle at once. Play your cards right and your investments can bring you a significant return.
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