When it comes to real estate investing, flipping houses is a fantastic way to generate income. As the American population grows, the demand for housing will continue its upward trend.
Families, individuals, and young couples across every state have continued to move into houses in cities and suburban areas at a rapid pace.
Flipping houses is a fantastic way to tap into that trend and profit handsomely. In this article, we'll discuss how to flip houses in New Jersey.
Flipping houses is the act of buying a home, generally at a discount to market value, renovating it's interior and/or improving its exterior, and then relisting the house for a profit. There are many ways to invest in the real estate market.
You could flip a single-family residence, a short-term rental, or even a multi-family property. There is no shortage of opportunities across America - and specifically New Jersey - to buy, renovate, and resale houses.
According to the 2021 New Jersey census, there are 3,780,004 housing units across the state, and of those units, 63.8% are owner-occupied. Meaning, there are a large number of individuals in New Jersey that desire to own, instead of rent, their own homes. Because there is such a large demand for housing in the Garden State, these home buyers are generally willing to pay top dollar for themselves and their families - netting large cash flow for the fix and flip investor.
According to ATTOM, a leading curator of real estate data, over the past year, flipping activity has only increased across the nation. However, while the rest of the nation saw a slight decrease in profits, New Jersey saw an increase. A testament to the strength of the market.
In 2020, over 1,600 houses were flipped. Of those flip projects, the average revenue house flippers generated was over $120,000 per house. Though those numbers might have been a one-time Covid fluke due to the rapid rise in housing prices, expect an increase in house flipping as the industry expands.
Here are seven actionable steps you can take in order to tap into the thriving New Jersey house-flipping market.
Mentors are essential for finding a successful fix and flip investment properties. Every investment poses a significant risk of capital. Expenses can be underestimated, market values can be miscalculated, and costs could run wild. Finding a mentor with real-life experience dealing with the typical challenges of flipping homes can be instrumental to your profit margin.
Find a mentor through online investment clubs and social media forums, reach out to brokers and bankers to refer repeat clients over to you, or spend money on a real estate course to help you network. Although these tactics might take some time and money, finding the right mentor is invaluable to your success.
Before diving into the New Jersey housing market with real capital, consider educating yourself on the housing trends, average household income, licensing requirements, and neighborhood attractions. A great place to start is glossing through the various educational content embedded within local realtor networks.
Here is a list of the realtor associations in some of the major New Jersey cities and counties:
Spend an evening glossing through some of these class offerings and content. You’ll pick up on a number of trends that are essential to determining the viability of specific New Jersey sub-markets.
Next, you’ll want to look at live listings and recently sold homes on Zillow and other sites to see which price ranges are appropriate for the neighborhoods you desire to work in. There is no better indication of a home’s value than seeing what real people have spent on similar homes on similar streets.
Lastly, you’ll want to research New Jersey laws and licensing requirements applicable to New Jersey investors. Though getting a license is not required to flip a house, getting one anyway could be a great idea. As a licensed agent, you’ll have a number of resources at your fingertips that can help you successfully navigate a market and flip the right houses.
Check out the State of New Jersey website for testing requirements and licensing coursework you’ll need to pass. Then, once you’ve educated yourself and have learned the New Jersey laws, it’s time to start looking for deals and crunching the numbers.
One of the most important aspects of flipping a house is crunching the numbers and ensuring you’ve found the right distressed property. For this part of the process, the primary focus should be on assessing the ARV - or after repair value - of a house, estimating the rehab costs needed to increase the value of the home, determining the holding costs associated with your project, and calculating the MAO - or maximum allowable offer.
In a nutshell, the ARV represents the value of the home as compared to other nearby houses of similar configuration and similar quality. In order to calculate this figure, you should speak to local real estate professionals, like real estate agents, general contractors, and lawyers.
They know the neighborhood very well and they’ll be able to help you assess the correct value for your home. After calculating the ARV, many house flippers consider the 70% rule before making an offer. This rule states that you should only offer 70% of what you believe to be the after repair value of the investment.
This equation calculates the MAO - or maximum allowable offer. The calculated value will ensure the investor makes a profit despite the many moving variables associated with the flipping business.
For reference, here is the formula many investors use:
(ARV x 70%) - Renovation Cost = Maximum Allowable Offer (MAO)
After learning the back-of-the-napkin formulas and tricks associated with the flipping business, it’s time to put in the work and actually find the deals and analyze as many properties as you can. In order to be successful in this business, you’ll need to constantly be on the lookout for distressed properties in attractive neighborhoods.
Consider glossing through the MLS and networking with local agents. Once you find an interesting property, you’ll want to very quickly crunch the numbers and see if it’s worth your while. Consider checking out Lakewood, Bergen County, and Jersey City - these are all up-and-coming New Jersey communities worth considering.
After you’ve found the right deal, it’s time to raise the capital needed to purchase, rehab, and hold the property. Although many investors elect to take the all-cash route to reduce risk and increase ease of closing, there are a number of other capital sources to consider.
Hard money is a loan from a non-bank lender. Usually, these lenders can close very quickly and with more leverage than a typical bank loan. However, hard money loans are not without their risk. Though you’ll get more money, you’ll be paying a hefty premium.
Interest rates on these loans can be as high as 15% - not to mention you’ll be paying a few percentage points in fees too.
Bank financing is a great way to raise capital if you aren’t in a rush to close. The overall lending process can be a bit tedious and sometimes take as long as 30 - 45 days, but you’ll get a much cheaper rate than what you’d otherwise pay for a hard money loan.
If you are looking to buy and hold the property or don’t mind paying for third-party reports like an inspection and an appraisal, a bank loan might be a good option. Keep in mind, due to their often uninhabitable condition, not all distressed properties qualify for a bank loan.
Another alternative way to raise capital is through a private loan or JV (joint venture) investment. A private loan or an equity infusion through a joint venture simply means a loan or investment from a family, friend, or mentor.
Generally, these types of capital are easier to fund than a hard money or bank loan because they are usually conducted as an unofficial I-O-U, rather than a more tedious process with a mortgage note and lien on your property.
Reach out to local real estate investors that simply don’t have the bandwidth to complete another flip. These individuals know the industry well and might consider sending you capital to fund your flip in exchange for some equity on the upside or a fixed interest rate.
Read Also: Private Money Lenders: The (ULTIMATE) Guide
Once you’ve raised the requisite capital needed to purchase your property, it’s time to close on the house. For this part of the process, you’ll either work by yourself, with an attorney, or with an agent. New Jersey is an escrow state, meaning you don’t need to work with an attorney to get the deal done.
Typically, you’ll send earnest money over to a third party and follow standard closing procedures. This likely includes inspections, working with appraisers, facilitating the closing with title companies, and working with the bank if you elect to get a loan.
Then, after about 14 - 60 days, you’ll close on the property and begin your renovation.
When renovating a property with the end goal of flipping, you must be certain you are staying within budget. Fix and flip investors work with a very tight margin of error.
If your project goes over budget by just a few percentage points, you could go from turning a profit to losing a significant amount of money. In order to avoid that scenario, be sure to button up your contractor management skills.
Your contractor will be the one coming up with the scope of work and putting actual hammer to nail inside your property. He or she will also be managing a large team of sub-contractors that will be working simultaneously alongside other subs. It is imperative that, with so many moving parts, you constantly monitor the process to ensure all goes according to plan.
Though each investment is different, some improvements you might want to consider include new flooring, paint, doors, light fixtures, bathrooms, kitchens, and landscaping. Although, before you begin, be sure to check market comps to ensure your home’s improvements will meet the demands of the neighborhood.
Read Also: Red Flags Before Hiring a Contractor
Once you’ve completed your renovation, it’s time to consider selling your house. The most successful fix and flip investors typically renovate and sell the house to owner-occupied homeowners. Homeowners have access to financing and are usually willing to pay a premium for their desired house.
However, some fix and flip investors would rather put a little less money into renovating the house and instead sell to other investors. Both strategies are unique and can lead to substantial profit.
When reselling your home, be sure to consider the fees associated with the sale. These fees can include appraiser fees, inspection costs, title insurance, legal bills, and realtor commissions if you are working with a broker. Though the seller may pay for some of these fees, each case is different, and each case must be analyzed individually.
Then, once you’ve found the right buyer and closed on the deal, hopefully, you’ll make a nice bit of money in a short amount of time.
There are a number of ways to find houses to flip in New Jersey. You could sift through websites and listings like Zillow and the MLS. You could work with a real estate agent that knows the market extremely well.
You could network with other investors and wholesalers to share ideas and talk about specific properties that might not meet their buying criteria but might be of interest to you. You could also perform direct seller marketing tactics like sending postcards, making cold calls, and going door-to-door to see if people would be receptive to fielding offers.
Lastly, you could work with banks and auction sites to find recent or upcoming foreclosures to buy.
Seeking out these methods and turning over as many properties as possible might sound tedious, but it will undoubtedly give you a leg up against your competition and put you one step closer to finding the perfect deal.
No, you do not need a license to flip houses in New Jersey. However, it might be a good idea to get one.
If you plan on flipping a number of houses within the state, you’ll end up paying a pretty penny to your real estate agent when they market and sell the asset. To avoid these costs, consider getting a license and self-listing your flipped properties.
You’ll not only save money, but you’ll also get access to the MLS and other resources not readily available to other investors.
Read Also: How To Get MLS Access: The (Ultimate) Guide
The amount of money you need for a flip will largely depend on the size of the property, the scope of work it needs, and the intended exit strategy. As mentioned earlier, the MAO formula can help you determine how much you should pay for your pre-flipped house.
Then, once you work with your contractor and scope out the New Jersey market, you’ll get a better sense of how much money you should raise for your flip.
According to the New Jersey census, the median price for an owner-occupied housing unit is roughly $355,000. Though it’ll depend on the specific market you’d like to invest in, expect to purchase a home in the $200,000 to $275,000 range and spend at least $25,000 - $50,000 on your renovation. That way you’ll give yourself some breathing room when you look to sell your house for approximately $350,000.
Not everyone has the money to flip a house - especially In New Jersey where housing prices can be pretty costly. Rest assured though, that shouldn’t deter you from raising capital and getting into the flipping business.
If you don’t have the cash to do the flip on your own, consider private money lenders, hard money lenders, wholesaling, and crowdfunding. Each of these strategies is unique and can help you secure the right financing for your project.
New Jersey is an extremely diverse state with so much to offer. Its borders house a wide scope of religions, ages, demographics, and income levels. Finding the right niche and submarket is essential to ensuring your success as a house flipper. Check out this 2021 list of the growing cities in New Jersey.
Consider looking into Jersey City, Hoboken, and Newark. These markets are very close to New York City and have recently enjoyed a large amount of population growth since Covid.
You might also want to consider South New Jersey like Lakewood, Cherry Hill, and Trenton. These cities are very close to Philadelphia and have had a nice influx of residents moving into the community.
Flipping houses is a great investment strategy to consider. New Jersey, specifically, has a lot to offer investors when it comes to attractively priced houses, engaging residents, and desirable neighborhoods.
Be sure to do your research, engage in open dialogue with a mentor, and analyze every deal that comes across your desk.
With the right preparation, before you know it you’ll be flipping multiple houses a year generating thousands of dollars in income. Good luck!
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