Interest Rates Are Super Low – Is Now the Perfect Time to ‘Flip’ a House?

Portrait of a consultant showing house to a couple.
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With interest rates at an all-time low and houses flying off the market at record rates, is it a good time to get into real estate investing? A fix-and-flip property can be a good foray for first-time investors who don’t want to deal with property management or being a landlord.

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While real estate investing (or REI, as the pros call it) may be less risky than, say, day-trading meme stocks, it could be a challenging time for first-time investors to enter the market. 

“This is actually a very risky time for a first-time real estate investor to flip,” says Daria Kelly Uhlig, a Realtor™ in Maryland. “Flips are selling for more now, but substantially fewer homes are being flipped because the market is so tight and bargains are extremely difficult to find.” 

Robert Taylor, The Real Estate Solutions Guy, a rehabber in Sacramento, Calif., agrees. “In my opinion, it’s an incredibly dangerous time for home flippers. The market is crazy hot, and the opportunities to buy homes at a price that makes financial sense is limited.” 

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See: Houses in These 29 Cities Are Suddenly Major Bargains
Find: How the Real Estate Market Was Impacted in These 25 Places Hit Hard by COVID-19

However, now could be a good time to do your research, start building a network in the real estate community and keep your eyes open for a good investment property. “It’s definitely a good time to lay groundwork, learn the market and assemble a team,” Uhlig says. “That way, you’ll understand a good opportunity when you see it and can be ready to jump. Since you’re competing with seasoned investors, having the support you need lined up can be critical.” 

If you do come across the right deal at the right time, it might even be worth the risk to make the investment. Real estate investor Kyle McCorkel at Safe Home Offer in Hummelstown, Pa., says, “With the current market heavily leaning towards being a sellers’ market, it can be a great time to sell a flip…Home staging is usually worth the extra cost, as it can help you sell quicker and for more money.” 

What steps can you take to improve your chances of success as a beginning fix-and-flip investor? 

See: Buying a Home in 2021? Here’s What You Need To Know
Find: Tips for Negotiating Repairs After a Home Inspection

Understand a Comparative Market Analysis

A comparative market analysis, or CMA, is the key to knowing if you’ve found a good deal on an investment property. However, calculating a CMA is a complicated formula and requires expert knowledge. “Pair up with an agent who knows the homes in the market really well and can be very precise with CMAs,” Uhlig says.  

Know Exactly How Much Money You Need

Another key to determining whether an investment property is a bargain or a money pit is figuring out exactly how much money you’ll need for the project. “Don’t forget to factor in miscellaneous costs such as holding costs (property taxes, insurance, interest) and closing costs on both the purchase and the sale (transfer taxes, title fees, commissions).  These can add up to thousands or tens of thousands,” McCorkel says. 

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Uhlig adds, “Find a contractor who can accompany you on showings and give reasonable estimates on the spot.” 

See: Common Real Estate Myths That You Need to Know
Find: The 20 Hardest Places to Sell a Home

She shares a formula used to determine how much you should pay for an investment property. “As a general rule, a good flip would require a total investment of 70% or less of the home’s current after-repair value (ARV). Say, for instance, you buy a house for $200,000 that needs $25,000 worth of work. Add 10% to that to cover unexpected expenses, plus closing costs, and you’re up to around $235,000. You’ll also have closing costs and broker commission when you sell the house. This brings your total investment to $250,000. Staying within 70% of ARV means you’d need to sell the home for about $357,000. To put that in context, you’d need to purchase that $357,000 (ARV) home at a 44% discount.” 

Purchasing conservatively — and sticking to your investment budget — can help mitigate some of the risk. “There will always be those who make money because they’re willing to bet on rising prices. We’re riding the roller coaster up in terms of prices, but if some black swan event pushes us unexpectedly over the top, it will be a quick downhill ride,” Taylor says. 

See: 5 Signs You’re About to Overpay on That House You Want
Find: Real Estate Agents Reveal Their Secrets to Get Your Home off the Market Fast

Consider a Duplex or Vacation Rental as Your First Property

If you don’t want to risk getting stuck with a property that doesn’t sell or will create a capital loss if you do sell, consider a duplex that you can live in and rent, or even a vacation rental property, Daria suggests.  

“My resort homeowners make about the same whether they rent year-round or short-term, but with short-term, they also get to use their properties,” she says.  

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About the Author

Dawn Allcot is a full-time freelance writer and content marketing specialist who geeks out about finance, e-commerce, technology, and real estate. Her lengthy list of publishing credits include Bankrate, Lending Tree, and Chase Bank. She is the founder and owner of GeekTravelGuide.net, a travel, technology, and entertainment website. She lives on Long Island, New York, with a veritable menagerie that includes 2 cats, a rambunctious kitten, and three lizards of varying sizes and personalities – plus her two kids and husband. Find her on Twitter, @DawnAllcot.

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