Maryland is an excellent place to start house flipping. However, you should not begin your house flipping trip until you are well-prepared and know what to expect. Before you start flipping houses in Maryland, here’s what you should know.
Flipping a house entails purchasing a low-cost house, remodeling it, and then reselling it for a return several months later. This may be a very profitable investment, and so many popular tv programs have made the process seem glamorous.
Baltimore was named one of the top five hottest flip markets in the United States by Bankrate in 2020. “Last year, flips accounted for 9.9% of total sales. The average cost of a home is $62,500. The average resale price is $155,000.”
Find a Property to Flip in Maryland that is Undervalued
Finding an area with the attributes people want – close places to eat and drink, walkability, proximity to the city center, and nearby schools for families – is your best shot for buying and flipping a property.
Many Baltimore neighborhoods are now considered “up and coming,” and they are continuing to accommodate the city’s rising population. You want to purchase low and sell high, just like any other investment, so seek for regions that are undervalued by the present market based on all the great attributes they have.
Source Funding for Maryland House Flip from a Reputable Lender
As a newbie, there are various options for purchasing a home to flip. The big four are listed below.
1. Traditional Lender
You obtain a mortgage to purchase a home. It will only function if you are purchasing a home in livable shape; else, the lender will refuse to approve your loan. This is a wonderful option for first-time flippers who would not be prepared for a wall-tearing makeover in the first place, especially if you save money by living in your flipped property until it’s finished.
2. FHA 203(k) Rehabilitation Loan
Anyone can put as little as 3.5 percent down on a property with an FHA loan, so you can purchase a house and pay for the repair without having to take out several loans. This property will need to meet minimal security and occupancy regulations, just like a regular lender. To meet the financing conditions, you’ll also be required to hire contractors (unless you are one yourself).
3. Hard Money Lenders
Lenders who provide hard money loans in return for collateral are known as hard money lenders. If you are flipping for the first time, be cautious and ensure you grasp the loan rates and hire a local Maryland hard money lender.
4. Cash-out Refinance
If you have your own property, you can use refinancing to access your equity.
Purchase the property in Maryland for a price that makes it possible to generate profit
Working with a real estate agent has its advantages, particularly if you’re looking for a specific sort of house at a specific price point.
Brokers have a wealth of information and data on the neighborhoods and home values in their area. They understand precisely what buyers want, so they can pair you with properties that will sell fast once they’ve been renovated.
They can not only assist you in locating properties that you may not have explored, but they can also assist you in avoiding disastrous investments. When it comes to flipping a house for profit, having good “bones” is crucial, and not all houses have them.
If it’s in an area where there isn’t much turnover and things don’t appraise very well, and no one purchases there in the season that is really coming up in two months, it’ll be meaningless because it’ll sit on the marketplace for the next six.
So it’s not just about how easy it will be to fix up, but also about where it is located and what the neighborhood’s sales tendencies are. So, when it comes to figuring out how much it’ll cost, you’ll have to mix the two.
Complete renovations that will increase the After Repair Value (ARV)
How much does it take to flip a property, and how much profit can you expect? Sustaining profitability is based on the ARV calculation. After all expenditures have been deducted, you should aim for a 10 percent to 20 percent return on the investment at the very least.
You must target a 20% net income after all expenditures of your sale price. Anything beyond 15% is typically deemed as a successful deal, but 20% is a reasonable aim to begin with to give you some room for mistakes.
The actual cost will vary greatly based on where you live (construction and labor expenses vary greatly by location), how extensive the renovations are, and how long you plan to keep the property. Rehab Financial has a helpful house flipping calculator that will help you figure out how much to spend on properties in your area, taking into account:
- the estimated cost of buying
- expected duration of the project
- property taxes on a monthly basis
- the price of rehabilitation
- the rate of interest on your loan
- insurance on a monthly basis
- bills for utilities
To put it another way, when shopping for a property to flip, bear in mind that there’s a lot more to think about than just the price you paid for it minus the price you sold it for = profit.
Remodeling Magazine’s Cost vs. Value analysis includes information on the latest average expenses by region and even specific city if you need to contract out any of your work.
How to Turn a Profit When Flipping a Maryland House
There’s never a guarantee if you’re trying to make a profit, which most investors are. There are, however, a few best practices that can help you get ahead of the game and increase your chances of success. When it comes to house flipping in Maryland, there are a few things to keep in mind.
1. Get to Know Your Market
The first thing you should do is learn everything there is to know about your market. It’s critical to comprehend the type of buyer you’re aiming at. It’s also crucial to understand what the buyer wants and needs in a home.
Do your homework and look for venues that appeal to the target market you want to sell to. Then team up with a seasoned local real estate agent who can set you on the road to success.
When it comes to high-risk investments like property flipping, you can’t afford to take risks. A real estate broker will use hard data and statistics to help you make informed decisions.
2. Understanding Your Financial Options
It’s also critical to comprehend and honestly assess your personal financial status. You must determine how much money you can afford to spend and how much money you can afford to lose. Learn about the many financing choices available to you, as well as the associated benefits and dangers. In the next section, we’ll go over this in further detail.
3. Stick to the 70 percent rule.
In house flipping, there’s a rule that says you shouldn’t invest over 70 percent of the after-repair value (ARV) subtracting the repair expenditures on an investment property. This is what the formula looks like.
Repairs = ARV(0.70) — Maximum Investment
The median home value in Frederick, Maryland, for example, is $259,700. Assume you have a $25,000 repair budget.
$156,790 = $259,700(0.70) — $25,000
Using this example, you wouldn’t want to spend more than $156,790 on the first purchase of this hypothetical property.
4. Other Things to Think About
Finally, think about things like how much time you’ll have to spend on repairs, the average time it takes to flip a house, which is usually between 150 and 190 days, and your financing alternatives.