Take this house and flip it

The house in Bethpage was the kind of property that would give most house shoppers nightmares.

"The ceiling was caving in. The basement was filled with things from four generations," said Charles Weinraub. "It needed a whole renovation. To most people, this would not be ideal."

But to Weinraub, a prolific house flipper and CEO of Handsome Homebuyer, a real estate investment company based in Farmingdale, this house was perfect.

"Anything that makes the hair on somebody’s neck stand up and makes them run is what I want — anything that needs renovation that can an add value," Weinraub said.

House flipping — a term that makes buying, renovating and reselling homes sound deceptively simple — is risky, often expensive and filled with twists and turns. Flippers typically look for properties others avoid, escaping bidding wars and, after months of renovations, hope to resell at a profit.

"We're looking for houses that need work," said Jamell Givens, owner of 24/7 REI LLC, a real estate investment firm based in Amityville. "We buy it, renovate it, modernize it and sell it for a profit, hopefully."

Nationally, about 33,000 single-family homes and condominiums, or 2.7% of total sales, were flipped in the first quarter of this year, according to real estate property company Attom Data Solutions. Median sale prices were $231,500, up from $222,000 a year ago, and gross profit was $63,500, up from $62,000 a year ago. Metropolitan area gross profit was nearly $167,000, according to Attom.

"It’s not what it looks like on TV," said Chris DiJorio, owner of Sayville-based North Haven Builders, who has flipped houses. "You need to understand the market, the market value of that home, the renovation process and surprises that come with it."

Training required

Ask experienced flippers how they learn and you get different answers. Helena Veloso became an expert on houses as a regional manager at Douglas Elliman, and now gives seminars on flipping and investing. Weinraub learned by getting coaching through the East Coast Real Estate Investors Association and recommends getting involved with such groups, which can "educate and connect investors, from those who have never done a house to those who do 100 houses a year," he said. He spent four years training with a mentor before his first flip and also has a master’s degree from New York University in real estate development.

He recommends YouTube videos, podcasts and books on the topic as well as real estate investment site Biggerpockets.com.

Finding flips

Flippers typically target specific territories, which they know well, from school district to trends. Weinraub uses TV, radio, contacts, social media and private marketing to let people know he’s in the market for homes. Attorneys sometimes have clients who want to sell a house fast, or an investor may let a flipper buy a house for a small fee, he said.

Givens said his firm sends about 10,000 pieces of mail a month. "We look for homeowners who owned their homes for a long time, absentee homeowners, recently inherited properties," he said.

Beating the market

Would-be flippers do well when working with real estate agents, Veloso said. "Tell them what you want," she said, and make offers. They know the market and might know of properties before they hit the market, key to getting deals.

DiJorio said mortgage brokers also can give tips, sometimes for properties available due to divorce, estate sales or foreclosures. Estate sales can lead to candidates for flips not as widely circulated as some others. "They may be looking to liquidate," DiJorio said.

Investors also buy distressed houses owned by banks, known as REOs (real estate owned), once the bank goes through foreclosure due to unpaid mortgages.

Where to search online

Websites like Craigslist.com, OneKeyMLS.com and other real estate listing sites are good places to search, along with sites like Auction.com that offer bank-owned properties, Weinraub said. Nesconset-based Long Island Profiles provides real estate and foreclosure information, while Geodataplus.com has information about property and comparable sales.

Cash and financing

If you find a prospect, be ready to fund the purchase. The number of homes flipped in the first quarter initially bought with cash rose to 59% from 58% in the prior quarter, according to Attom.

Weinraub said the worst houses can be the best prospects. "Those houses are not mortgageable," he said. Veloso recalled buying a house in Southampton that had been through a fire and was too damaged for a mortgage. "The banks would not lend them money," Veloso said, "but I laid out the cash."

Financing still fuels flipping. According to Attom, 41% of homes flipped in the first quarter initially were bought with financing, up from 40% a year ago.

If you have a track record, DiJorio said, it’s easier to find investors. He worked with an investor who provided funds in exchange for a percent of profit. Real estate brokers, attorneys and mortgage brokers also can link flippers with investors.

The right house

Flippers avoid certain things. Veloso said "two-bedroom homes do not sell," so she targets those with three or more. She also avoids houses with backyards facing main roads or big restaurants, and tries to keep taxes low, because she may hold the houses for many months.

Foreclosed houses sold at auction may sound ideal, but flippers typically buy without being able to go inside, increasing risk, DiJorio said. "You’re essentially buying the home sight unseen," he said.

The most important thing with flipping a house is the price, and whether flipping it will yield a profit. "If you have the right house renovated the right way at the right price, it’s going to sell very fast," Weinraub said.

Calculating costs

The biggest mistake flippers make is miscalculating ARV, or after repair value. "You can get too aggressive with your after repair value," DiJorio said.

While houses are typically the biggest expense, flippers must calculate taxes, insurance, permits, utilities, numerous fees, commissions, borrowing expense, the cost of renovation and other myriad costs. Flippers frequently hire architects and surveyors as well as inspectors to gauge the property.

Flippers try to be efficient. "You’re responsible for house bills," Veloso said. "That’s why it’s important to do it quickly."

Research, renovate, resell

Finding and funding the purchase of a house is the first part of flipping it. Then comes the real work: the renovation.

Veloso said renovations, including permits, can take three to six months, before going to market, so flippers should set aside funds to cover costs.

Home flippers who sold houses in the first quarter of 2021 took an average of 159 days to complete transactions, down from 175 in the prior fourth quarter and first quarter of 2020, according to Attom.

Building teams

It’s important to work with reliable professionals, although you may be able to do some of the work yourself.

Givens has an acquisitions manager, lead manager and head of marketing, and brings in contractors to do jobs for them.

Weinraub uses architects and experts who handle permits, and works with a network of subcontractors on renovations that typically take six to eight weeks. "The easiest thing to do is give the keys to a general contractor, which is the most expensive," he said.

What to redo

Flippers typically put money into renovations, such as kitchens, bathrooms and windows, that might increase the sale price. Veloso sometimes adds garages or dormers to make rooms bigger. But, "I don’t get involved in making another room," she said. Weinraub spends an average of $100,000 to $200,000 per house and sometimes more. The surge in lumber costs during COVID was dramatic, he said.

Projects typically require interior and exterior alteration permits, which can take weeks to obtain.

It’s important to be aware of what other properties in your price range typically have in what Weinraub calls "norming" the market. A $400,000 house may not require central air conditioning, while one at twice the price might, he said.

Renovations need to be in tune with current styles and trends. White and gray color schemes are in, as are hardwood floors and stainless steel appliances. Touchless faucets, gazebos and pools all appeal to some homebuyers, but may not recoup cost.

Curb appeal

Landscaping and curb appeal matter. "I make it presentable," Veloso said, "so you can picture a family with kids who want to play in the backyard." Recently, she added a kitchen, bathroom, floors, windows, patio and vinyl siding to a home, and planted grass and flowers all as part of a major renovation. "That sold the same day that I put it on the market," she said.

Teardowns

While most flippers will renovate or gut structures entirely, some will decide to tear down a house and build a new one on the site. When a house is damaged to the point where it can’t be properly fixed, flippers sometimes hire general contractors to oversee an entire rebuild. DiJorio knocked down a house in Cold Spring Harbor he bought for $850,000 and built a new home in its place, which he said sold for just north of $3 million.

The power of real estate agents

When a house is ready to market, flippers look for a real estate agent familiar with the area and its home values who is also an excellent marketer. "Realtors can expose it to the buyer population who can buy the house," Veloso said.

Staging is crucial

Many flippers use professionals to stage the homes, sometimes even buying furniture that gets moved from house to house. "They fall in love with the homey feeling because of staging," Veloso said of homebuyers. She spends around $3,800 per home on staging, which might bring her up to $40,000 more per home, she said.

Sealing the deal

Investors may choose to rent rather than sell, which means carrying mortgages, taxes and insurance. While real estate agents can market and hold open houses, mortgage specialists qualify people to make sure they can close. Buyers are vetted and sales typically go through in 30 days, Weinraub said. "You want to make sure they can afford it, so they can actually close."