Are you considering flipping houses in California? You've come to the right place.
In this article, we're going to cover everything you need to successfully research, purchase, renovate, and sell homes in California. We'll also touch on the legalities of flip properties, the best cities to flip houses in, and how to finance this investment (even if you have no money or poor credit).
California is home to a robust and competitive real estate market. While it can be challenging to purchase your first flip project, it sure won't be hard to sell it later on. Read on to learn more about how to flip houses in California.
The California real estate market is soaring to new heights.
According to Attom Data Solutions, home flipping rates have dropped an incredible 90%, yet profits have been consistently breaking record highs. Most California properties are bringing in a staggering $73,766 gross profit. If you were wondering, the national average gross flip profit made per home is $67,000.
The median home value rose 20.1% this last year, pushing the median home price to $734,612. Keep in mind that the median sale price of houses in the United States on a national average is $411,200 (as of Q4 2021). This means that the median home price in the Golden State is nearly double the national average.
Real estate investment properties vary widely from city to city in California. For example, in December 2021, the median home sold price in:
Note: The above city statistics were sourced from Realtor.com in January 2022.
If the profits aren't compelling enough, pay attention to the more significant loan prospects, a strong buyer market, aging homes, and the potential flood of foreclosed homes.
Since California has such expensive homes, private lenders are more willing to raise loan limits, which will allow flippers to pocket a healthy, higher profit.
Next, the Bear Flag State is a sought-after area to live and work within. Tech startups, incredible diversity, a strong economy, eight hundred miles of stunning coastlines, and close access to the mountains, valleys, deserts, and oceans make it an appealing state. This buyer's market is fortunate for property investors such as yourself.
Lastly, politicians recently lifted the foreclosure moratorium; Legislation will no longer protect the last single-family homes after April of 2022. It's uncertain how this will look, but statistics by Attom Data Solutions says that California had the highest rate of foreclosures in the United States, with 3,434 foreclosures in the 3rd quarter of 2021.
It is exceptionally profitable to remodel and flip houses in California.
Some real estate investors flipped houses in the areas of Vermont Square and Exposition Park in Los Angeles and netted median profits exceeding $190,000.
Other neighborhoods in Los Angeles, such as Tarzana, generated median profits of $82,000 for flippers.
The most successful investment strategy is to find an up-and-coming neighborhood and buy property before the area becomes popular. Flipping homes in the Gold Rush State is certainly not for the faint of heart, but it has the potential to be wildly profitable.
California house flippers can make a tidy profit, regardless of which city they invest within.
Attom Data Solutions says that the average California house flippers make $73,766 in profit per house in 2020 and $105,000 in 2021.
LendingHome estimates that the average house flippers make $101,900 in profit per home.
The profits are a bit all over the place. Some cities saw zero or negative earnings in the flip projects, while others, such as San Francisco County, netted flippers an average of $390,000 in profits.
House flipping is entirely legal in California.
However, there are forms of illegal property flipping. You should avoid these methods at all costs to avoid hefty fines and state or federal prison sentences. Truly, the crime is usually not the flip, but rather, mortgage or loan fraud.
What is loan or mortgage fraud? This type of fraud uses different appraisers to overestimate a property's value to increase the loan amount. If the homeowners default on their loan, there is no possible way for the bank to recoup costs.
Illegal property flipping is similar to loan or mortgage fraud, except this time, the flippers overinflate the price thanks to a dishonest mortgage broker or appraiser and then sell the home to an unsuspecting buyer.
It is not illegal to sell a property for way over its actual value. It is unlawful to implement the assistance of an appraiser to falsely inflate the price or misrepresent the actual value to the potential new homebuyers.
You do not need a real estate license or a contractor license to flip houses in California or any other state in the US, for that matter. If you are interested in the details of flipping houses without a license, check out our complete guide here.
Having a real estate and contractor license can come in handy, especially if you plan to make real estate flipping your primary source of income.
Having your real estate license allows you to skip over real estate agents, and in some cases, not have to pay a brokerage commission when you buy and then resell the home.
This license also allows you to access the multiple listing service (MLS), easily list your properties for sale, earn referral commissions, build your name in your local real estate community, earn credibility, and network with other realtors.
Having your contractor license is not necessary to flip houses in California or anywhere else in the United States.
Again, having this license can be beneficial, and the benefits grow stronger and more vital for every house you flip.
Having your contractor license allows you to oversee the projects on your own, save yourself a bundle of cash, usually saves time, and allows you to earn more money thanks to the sweat equity you invest in each property.
A bonus of a contractor license is the connections you will make with fellow contractors in your area. Their expertise can boost your skills and your ability to take on more distressed property projects.
There are eight simple steps for flipping properties in the Golden State. Let's get into them!
You have to stay within a set budget, or else you run the risk of running out of capital and having to abandon your flip project.
The 70% rule in house flipping is one of the fundamental rules for house flippers. It is to pay less than 70% of the property's after-repair value, also called the ARV. You can get the maximum allowable offer (MAO) by taking the home's resale price and deducting the costs of the needed repairs.
For example, let's say a house has a $200,000 ARV and needs $20,000 in repairs to take care of a mold problem and minor cosmetic detailing.
70% of the after repair value is $140,000. After taking away your $20,000 in necessary repairs, you are left with $120,000. If you follow the 70% rule, you will pay no more than $120,000 for the home's purchase price.
You might also want to factor in the cost of self-storage, a service that many people use while remodeling a home. A storage unit in Los Angeles, for example, rents for around $210 per month.
Pay close attention to California's best and worst areas to invest in.
Look at this data from WalletHub. According to it, some of the worst cities in the United States to flip houses in are Oxnard, Los Angeles, San Francisco, and Oakland.
While these cities have a significant return on investment, they are more difficult to affordably source materials for. The purchase prices are high, and there aren't many real estate agents available in that area (which is another compelling reason to get your real estate license).
Out of 172 cities evaluated across the US, these three California cities were among the top five most expensive cities to complete full-home remodels.
These two cities have the fewest real estate agent to capita ratio, making it more challenging to find the flips.
These cities were ranked as having the six highest median purchase prices in the entirety of the United States.
Being fully honest with yourself and keeping a realistic perspective on your unique situation can save you a considerable amount of stress, time, and money.
Can you make most of the repairs yourself? Are you willing to learn how to do them? Can you hire someone to do it for you? If you hire someone, are you ready to step back and let the professionals do their jobs without micromanaging? If you make a mistake, or there is a significant issue with the home, can you afford a setback- financially or time-wise? Do you have someone to help you out as a mentor? Can you hire a mentor if not?
Determine a timeline, decide how involved you want to be, and understand that things are likely to come up. Be flexible, be creative, and be patient.
If you've been in the real estate game for a long time, you may have enough savings to make an all-cash deal. While it's not fun to have all your money wrapped up in a project, it usually speeds the sale up and saves you a tidy sum of cash too.
If you can't afford an all-cash deal, you need financing. Your two best options are hard money lenders for a short sale or a traditional home loan. Quick sale loans are usually paid back within half a year to two years. A conventional loan lasts for fifteen or thirty years.
Investors are another option, albeit more difficult to source. They can provide the cash you need while you are typically expected to research your local housing market, source the deal, oversee the rehabilitation, and manage the flip.
Another fantastic option is to use subject to transactions. This is a great way to secure a house without running your credit or having a lot of cash on hand.
You will need a real estate attorney, a realtor, a lender, a general contractor, and laborers. A mentor is recommended but not a necessity. Having access to a good group of like-minded investors is just as good and usually cheaper.
Try finding your community on a Facebook group, a subreddit, or on Twitter. There are thousands of other investors out there who are willing to help one another, so take advantage of that, and reciprocate when you can.
Having all of these people lined up will save you a considerable amount of money and stress and will allow you to immediately jump into your flip project as soon as you take possession.
If you're looking for a quick flip that just requires a little bit of cosmetic work such as paint, a few replaced floors, or new windows, you're going to need more capital. These properties are pricier, but luckily, less of a headache. Turnaround is also quicker.
If you're looking for a more difficult, in-depth project that will yield a higher profit, you're going to have to get your hands dirty (or pay big bucks to someone who will do that for you).
Distressed properties, foreclosed, and fixer-upper houses that require considerable work will take longer, require more work, and more money invested into the repairs, but are usually worth it; they also bring more value to the neighborhood and can make a home safe and livable for families once again.
Extensive flips can include rearranging the floor plan, bringing the home back up to code, replacing plumbing or wiring, building on an addition, replacing the roof, or even lifting and releveling a house with a cracked or dilapidated foundation.
If you're brand new to flipping houses, you need an excellent team to tackle this kind of project. Still, it's probably best to work your way up to one of these monsters. Get a few wins under your belt before taking on something this intimidating.
Be sure to consult your real estate attorney and contractor before selecting a home. You may also want to consult a fellow experienced investor and a real estate agent too.
For many investors, especially first-time flippers, this is the most thrilling part of the deal- getting to work on that rehab.
If you want to build your cash up fast and get the work done quickly, consider doing some of the work yourself. Even if you aren't comfortable or capable of doing the renovation work, you can certainly pick up a broom, powerwasher, or paintbrush and do your best to move things along. You can also make runs to the lumberyard or hardware store for your contractor.
However, in order to scale your house flipping business, you'll need to work with skilled labor and specialty contractors. As you take on multiple projects, you'll value your time more than the money saved by doing the rehab work yourself.
That said, the more hands-on you are, the more likely your property flip is to be a success. You must manage your contractors to ensure your scope of work is complete on time and on budget.
If consistent, recurring sums of income sound more appealing to you, then rental properties might be your ideal exit strategy. Look into hiring a property manager, they know a lot of the menial but oh-so-crucial laws of rental properties, and they can make this investment truly passive income for you.
If you want to get rid of the property and earn a lump sum of income, then reselling the house is your best option. In this case, you'll want to reach out to an experienced real estate agent and a home stager.
A talented real estate agent likely knows the local market better than you do and can help you command a better price while marketing the home in an effective way.
The interior designer can stage the home to make it more appealing to a wider audience. They almost always help you make back significantly more than you paid them in the first place, meaning that they are worth the money.
In California, the median home price is $734,612. Currently, we're seeing houses for sale in California as low as $49,900 for a three-bedroom, one-bathroom foreclosure property in Weed, CA. The highest property currently listed for sale on Zillow in California is this 21 bedroom, 49 bathroom 105,000 square foot luxury mansion in the Bel Air neighborhood of Los Angeles. It is listed for $295,000,000 as of early 2022, demonstrating the very high end of the luxury market in California.
A portion of this price can be your down payment, usually requiring 5-20% out of pocket, with the remaining amount financed with a mortgage. Alternatively, you can purchase the home in full with cash.
The exact cost to repair a distressed house is all over the price, though it seems to be a recurring theme that most three-bedroom, one-bathroom homes cost $25,000 to $50,000 for a standard rehab. Many investors say that it costs about $20 to $35 per square foot of the house to repair, but these costs can drop to as little as $10 and up to $150 per square foot.
For the most accurate estimate, please speak to at least three general contractors and have them inspect the home prior to you purchasing it.
Carrying costs are often overlooked by first-time flippers.
These costs include your property taxes, homeowners insurance, general liability insurance, utilities (gas, water, & electricity), and general upkeep such as mowing the lawn, shoveling snow off the sidewalk or driveway, cleaning fees, etc.
These costs include real estate agent commissions, listing fees, notary fees, marketing costs, closing costs, title transfer fees, and any other legal fees incurred while consulting your real estate attorney.
Having connections with contractors is the best way to find your next contractor. But if you're new to the area or new to flipping homes in California, your next best option is to find them online.
Here are some of the best websites to find contractors for flipping houses in California:
HomeAdvisor offers up professionals for every aspect of your fix and flip project that you could ever need. This is a great place to check out reviews, pricing, and even directly book a handyman. Some contractors are available for a fixed price, which makes it easy for you to estimate how much you'll spend.
Thumbtack is similar to HomeAdvisor. It offers up many of the same services, but not all contractors use both sites, so it's worth your time to check out both.
According to Attom Data, some cities where gross profits rise the fastest are:
This depends on what you are looking for; generally speaking, the best place to flip houses in California is an underrated area that is about to explode in growth and popularity.
Often, beginners like cheaper foreclosure houses for flip projects. If this is more your speed, rural parts of California or northern California is the best place.
Flipping houses in Los Angeles and tertiary markets in southern California are the best places to flip houses if you like areas abundant with opportunity and wide profit margins.
Talk to a knowledgeable Realtor and explain your flipping style; they can connect you to the perfect property to purchase, rehab, and flip.
Flipping houses in California is not necessarily more complicated, though it does come with unique challenges that other states do not face.
For instance, California markets are hot. There is a considerable amount of competition when purchasing the investment property, which may force you to buy the home without an inspection, pay over the asking price, or be priced out of the sale.
Another issue is a shortage of laborers and contractors. Again, the market is booming, and professionals are exceptionally busy working on others' flip projects.
Now thankfully, this fast-paced market means that it won't take long for you to sell your finished home, especially if it is in an up-and-coming neighborhood. You may get offers that are considerably over your asking price too, which is certainly a nice perk.
California is an intriguing and lively state to flip homes. The scenery is gorgeous, the economy is booming, and more foreclosures are beginning to hit the market.
You will have to pay more for a house and the rehab costs in California are higher compared to most other states, but if you execute properly, you'll be rewarded with larger profit margins and a quick sale once you're finished.
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