Experienced real estate investors have proven that rehabbing and flipping are viable exit strategies in almost any economy. Even when the housing market is struggling in the wake of rapid appreciation and historical interest rate increases, home flippers have the potential to make impressive returns on their investments.
According to ATTOM Data Solutions’ third-quarter 2022 U.S. Home Flipping Report, the most recent report to document flipping returns, “The typical gross-flipping profit of $62,000 in the third quarter of 2022 translated into a 25 percent return on investment compared to the original acquisition price.”
Georgia, in particular, has seen the pursuit of profits lead to increased flipping activity. If you want to see what the housing market has in store, there’s no better time to learn how to flip houses in Georgia. This guide will teach you everything you need to know, including:
Otherwise known as rehabbing, flipping houses starts with buying a subject property under market value. In doing so, investors will emphasize homes that are either undervalued, in need of repair, outdated, or at risk of foreclosure. After all, the more of a discount the investor can receive on the subject property upfront, the better their profit margins will be on the investment.
Equally as important as choosing the right property is the method by which the deal is financed. Due to their relatively short duration (anywhere from a few months to a year) and the speed at which the market moves, flips don’t rely on conventional loans. Instead, house flippers use private and hard money loans. While they may coincide with higher interest rates (upwards of 12%) than their conventional counterparts, private and hard money loans give investors access to the money they need fast.
Once the property is purchased, the investor will make any necessary upgrades and repairs. The goal is to make the property more attractive to home buyers without going over budget. A general rule of thumb is to upgrade the property until it’s slightly more attractive to buyers than nearby comparable homes (comps). That way, profit margins remain attractive, and the home generates more attention than the local competition — both of which help the bottom line.
After improving the house, the investor will sell the property for more than their initial investment. Before too long, the investor will pay back their loan (with interest) and pocket anything left over.
More and more beginners are flipping homes in the Georgia real estate market. According to the previously quoted Home Flipping Report released by ATTOM Data Solutions, the Georgia real estate market had two of the nation’s most heavily flipped metros at the end of last year: Atlanta and Gainesville.
According to the report, “The largest flipping rates during the third quarter of 2022 were in Phoenix, AZ (flips comprised 13.7 percent of all home sales); Spartanburg, SC (13.3 percent); Atlanta, GA (12.9 percent); Winston-Salem, NC (12.7 percent) and Gainesville, GA (12.6 percent).”
It is worth pointing out that Atlanta and Gainesville aren’t the only metros with high foreclosure rates. Georgia has the eleventh-highest foreclosure rate out of every state, according to SoFi.
At $311,254, the median home value in Georgia is about 9% lower than the national average. That relative affordability, combined with a higher distribution of foreclosures than in most states, suggests now is a great time to learn how to flip houses in Georgia.
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If you are interested in learning how to flip houses in Georgia for the first time, start by familiarizing yourself with the following steps:
The first thing new investors need to do is proactively educate themselves. While it’s never a bad idea to turn to credible literature and in-depth research, the best way to increase your house-flipping acumen is to find a house-flipping mentor.
A truly great mentor — someone who has made success in the house-flipping industry habitual — is an invaluable asset. The knowledge and experience a mentor can share will help new investors mitigate risk and optimize efficiency on flip projects.
After finding a mentor to increase their knowledge of flipping houses in Georgia, investors should mind due diligence. Start by researching the local market with the resources listed below:
There are several ways to analyze distressed properties in Georgia, many of which may prove difficult for inexperienced investors. As a result, anyone learning how to flip houses in Georgia should start with the 70% rule. While not the most accurate unit of measurement, the 70% rule does provide new investors with a good idea of how much they can spend on a deal and leave enough room for profits.
The 70% rule will require investors to put in a little work upfront. First, they’ll determine a subject property’s after-repair value (ARV). The ARV, as its name suggests, is how much the home will be worth after the necessary improvements are made. The most accurate way to determine a home’s ARV is to evaluate nearby real estate “comps” that recently sold. Similar homes that have recently sold in the same neighborhood will provide the most accurate ARV.
Next, investors must create a scope of work detailing what repairs need to be made and how much they will cost. Labor and materials must be accounted for, including a small margin for error. The rehab costs should include everything required to achieve the ARV.
Take the ARV, multiply it by .70 (or 70%), and subtract the amount you budget for repairs. The resulting number is the maximum allowable offer (MAO), or how much you can spend on the home and still make a profit.
Read Also: Estimating Rehab Costs: (Ultimate) Investor's Guide
Flipping homes is a relatively short-term exit strategy. With most flips taking anywhere from one to 12 months, conventional 15-year mortgages and their unique amortization schedules are not a good fit for rehabbers. Instead, those who know how to flip houses in Georgia tend to favor flip loans which are more accommodating to rehabbers in the short term.
Private money lenders and hard money lenders, in particular, are preferred by today’s rehabbers. The speed at which they can be secured and implemented is well worth the higher interest rates they have become synonymous with.
Once funding is secured, it’s time to close on the house. The first step is for both parties to draft and sign a purchase and sale agreement. The purchase and sale agreement includes, but isn’t limited to:
Known as an “attorney state,” Georgia law requires an attorney to be present to facilitate the closing process. The attorney (or attorneys) handles all the matters of the closing, including those pertaining to escrow, property inspections, title searches, and anything else the parties include in the original contract.
Once the contract is upheld and all the necessary documents are signed, the attorney will distribute the keys and payments. Last, but not least, the new chain of title will be recorded in the county Recorder’s Office.
After the home is officially closed, it’s time to renovate the property. Use the scope of work you created to establish a rehab budget and make the necessary improvements. Changes to the property need to be made with one goal in mind: maximize the return on investment.
Flippers ultimately want to reach the ARV they calculated earlier by spending as little as possible. According to Remodeling Magazine, the best way for investors in Georgia to maximize their profit margins is to make the following improvements:
Investors can’t take their time and rest on their laurels; they must sell their home as fast as possible. The longer an investment property is held, the more costs and expenses the investor will incur. Property taxes, utility bills, general holding costs, and other costs increase with each passing day. Additionally, the longer investors are illiquid, the higher the opportunity cost. Selling the home will simultaneously place the proceeds in your pocket and allow you to move on to the next deal.
Consider working with a real estate agent. While their services will cost a percentage of the sales price, there’s a good chance their help will result in a timely and more profitable sale. Think of working with a real estate agent as an investment in and of itself; their services will come at a cost, but will most likely result in a large payday.
The median home value in Georgia increased by 3.9% in the last 12 months and more than 50.0% in three years. As a result, home values are near historic highs. Still, despite the latest appreciation, it is possible to find homes to flip in Georgia at a discount.
When looking for undervalued, off-market homes, investors should search the following:
Read Also: How To Build A Real Estate Network | Wholesaling & Flipping Houses
No, you do not need a license to flip houses in Georgia. Investors may flip houses in Georgia without a license if they do not act as real estate brokers or agents.
That said, investors can get licensed if they want. Becoming a real estate agent has its advantages, like access to the MLS and a broad network of industry professionals.
Getting and maintaining a license can get expensive, so investors need to weigh whether it's better to get licensed or work with someone who already has one.
Read Also: How To Get MLS Access: The (Ultimate) Guide
The cost of flipping a house in Georgia will change depending on several variables. Everything from the subject property to interest rates and renovation expenses will impact how much it costs to flip a home in Georgia. Regardless, investors don’t need to budget for the costs out of their savings. Instead, investors can flip in Georgia using other people’s money.
Investors can use private lenders’ capital instead of their own. In fact, the loans listed below are investors’ preferred methods of funding:
Here’s a list of some of the best cities to flip houses in Georgia:
The convergence of pent-up demand and relative affordability creates the perfect storm for real estate investors in Georgia.
In fact, there may be no better time to learn how to flip houses in Georgia than right now. The sooner you can secure your financial future in an uncertain economy, the better.
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