Analyzing Your House Flipping Project 

House flipping has become a popular way to profit off real estate. If you’re a handy house flipper with a good eye for properties and a reasonable repair budget, this real estate investing strategy may work for you. 

However, making a profit on flipping houses can get tricky, especially with rising median home prices that will cut into your potential ROI. You need to consider many different factors before purchasing your flipped property to have a better chance of profiting. 

Evaluate the Market 

The purpose of analyzing a potential house flip is to determine whether the home, once flipped, is likely to turn a profit. There are a few different ways to approach the analysis process, but inevitably you will need to determine the after repair value (ARV) of the property. The ARV represents how much your home is expected to be worth after your rehabs and renovations are complete.  

To accurately find your ARV, you will need to find comparable properties, or comps, that have been sold within the last couple months. You should be able to glean crucial information from these properties—are home sales going up or down in this area? If home sale prices are going down, you should look elsewhere, wait until the market starts to look up again, or set a definitive maximum purchase price for your flip. 

Another factor real estate investors should look for when doing market research is the average days on market, or DOM. If the DOM is decreasing, properties are selling faster and demand is higher. When flipping a home, you want to resell the property as quickly as possible to avoid carrying costs that will decrease your desired profit.  

Start by looking for neighborhoods in your area that see the quickest sales. If you can find an inexpensive home in an expensive neighborhood, your chances of turning a strong profit are better. 

Assess Potential Properties 

When analyzing potential properties for your flip, you’ll need important details of the property: the year it was built, how many beds/baths it has, and other aspects of the home that may have an impact on your flipping timeline, like any large-scale repair projects or expensive fixes you know must occur.  

Remember that older homes tend to cost more to repair due to the likelihood of major flaws like lead-based plumbing or foundational issues. On the other hand, older homes may cost less and decrease your purchase price. You must make important financial decisions and conduct in-depth analyses to decide whether a cheaper purchase price will warrant more expensive repairs.  

If you’re new to flipping, search for more modern homes to flip. Maybe you can buy the home, do a few high ROI renovations and sell it at a profit. Flippers with less experience may want to ease into the process by purchasing a turnkey home and doing small fixes to make it profitable rather than undertaking a larger, more complex flip. While the profit margin will not be as high as it would be with a cheaper, distressed home, you are dealing with less risk.  

Other aspects of a property that may make it lucrative are the things offered in the surrounding area. Are you in an area with good local schools? Do you have a homeowner’s association in the neighborhood? Answering these questions can give you a better idea of what a potential buyer would be willing to pay for your property.  

Identify High ROI Rehabs 

Costly, long-term renovations should be avoided as much as possible when flipping. The best types of rehabs for house flippers are those that provide the highest return on investment (ROI) with the least amount of time, money, and effort.  

A successful rehab project often focuses on cosmetic and strategic upgrades that enhance the property’s appeal to potential buyers without requiring major structural upheavals or massive long-term renovations. For instance, fresh paint, new flooring, upgraded lighting and minor kitchen/bathroom remodels are common project tasks for flippers. Strategic upgrades include rehabs like installing energy efficient windows and doors or improving insulation to lower energy costs. When estimating rehab costs, be sure to get accurate numbers from contractors in your local area. 

Of course, any necessary repairs like fixing structural and safety issues must be addressed as well. These repair costs must be factored into your budget. Be sure to repair any roof leaks, foundation cracks, and plumbing or electrical issues, as these problems could prevent the home from passing inspection. 

Plan Your Flip Using a House Flipping Spreadsheet 

Once you have a market and a property, it’s time to fully flesh out your project. It’s often helpful to plan your approach using a dedicated house flipping spreadsheet (download ours above) that calculates key metrics.  

A house flipping calculator or Excel spreadsheet can help you track all financial aspects of the project, from the initial purchase price and renovation costs to carrying costs, selling expenses, and potential profit margins. A designated expense tracker will help you get a comprehensive overview of your total investment. Then, once you start your rehabs, you can refer back to this plan to anticipate costs, stay within budget, and avoid cost overruns that could jeopardize your returns. 

Moreover, doing some financial modeling before your flip can help you make real-time adjustments and analyze specific scenarios. For example, you might test changes to different variables—such as an increase in materials or labor cost—to understand the impact it would have on your bottom line. This analytical approach can drastically increase your risk mitigation tactics by giving you a chance to prepare for these kinds of common pitfalls before they happen.  

Conclusion 

With your analysis in place, you are now better informed to decide whether the home to-be-flipped is a strong investment. You should aim for a profit margin that is at least 30% of the sales price— keep in mind that, in 2023, the average ROI for house flipping was 27.5%. This business can be tricky, so it’s important to get your facts straight before diving into a flipping project. 

If you’re ready to analyze your own flip, you can download a copy of Innago’s house flipping spreadsheet pdf at the top of this page.