Common Questions Series: #2 How Do You Know Which Houses to Buy??? (For Flips)

With so many different houses out there it creates opportunities for investors to choose a variety of strategies in which properties they will or will not pursue. For us, we have come up with basic criteria that works for us (I’ll share that criteria with you here in a minute). Before we even get into that though, keep in mind that everyone has different criteria depending on what they are most comfortable with, so before even searching for properties I would recommend sitting down and figuring out what your specific criteria is going to be. This will help you streamline which homes you spend most of your time looking at and will help you quickly filter out properties that wouldn’t work for you.

While we do have our specific criteria for homes, we mostly use these things as guidelines, knowing that each of these different elements could influence the end sale price for better or worse. Just being aware of what factors go into the value of the home has helped us tremendously. So here we go, these are some things we look for when buying a property.

The Market

One of the biggest risks in real estate is that market conditions can always fluctuate, but we’ve found one way to mitigate that risk is to stay closer to where the businesses are. Doing this will ensure there will almost always be buyers ready to buy your flips, and if worse goes to worst and no one can buy your home, you can always go to a backup strategy of renting out the home instead (when markets crash, rental demand typically goes up). Doing this will usually cover at least your expenses until the market goes up again and you can sell.

We like to be in cities where there are at 2-3 Fortune 500 companies. These companies typically have hundreds or thousands of employees which means if the market tanks, these companies likely aren’t going anywhere and you’ll still have customers to sell to. Other factors we look for to help in this regard are to look for cities with population over 200,000 people, and a history of growing population trends over the last few years. No one can predict the future, but there are certainly ways to hedge your risk by understanding your market before jumping in. Again, smaller cities and rural areas aren’t bad, we actually have property in these smaller areas too, but just remember to compensate for that risk and be aware of how market fluctuations can impact your resale or rental values.

Example: One of the areas we invest in is in St. Paul, Minnesota (granted we used to live there so it made it easier). This has been a good market for us because there is a population of about 300,000 (a lot more people if you include the surrounding Twin Cities population). Right near there are the headquarters of 3M, Target, and General Mills plus a large university. These are all solid companies that have helped the area not only grow, but also give us a sense of security in case of a downturn.

It’s All About the Numbers