How To Flip Houses In Pennsylvania: Step By Step (2023)

There are a number of ways to generate wealth. A quick Google search will reveal that you could invest in the stock market, buy bonds, own a business, or even invest in alternative assets like art and collectibles.

The most effective wealth-building vehicle of all is buying an investment property. The real estate industry can be daunting. It is vast and covers numerous asset classes, strategies, geographies, and styles - where should you even begin?

Fix and flip investing is a fantastic place to start.

According to ATTOM Data Solutions’ third-quarter 2022 U.S. Home Flipping Report, 92,422 single-family houses and condominiums were flipped in the third quarter of last year. The average gross profit was $62,000, translating to a return on investment (ROI) of about 25%. Though the profits might be enticing, there are a handful of steps you should consider before diving into the space.

If you want to learn how to flip houses in Pennsylvania, you’ve come to the right place. This state-specific guide will teach you everything you need to know about flipping homes in The Keystone State.

• What Is Flipping Houses?
• Pennsylvania House Flipping Statistics
• How To Flip Houses In Pennsylvania (7 Steps)
• How To Find Houses To Flip In Pennsylvania
• Do You Need A License To Flip Houses In PA?
• How To Flip A House In Pennsylvania With No Money?
• What Is The Best Place To Flip Houses In Pennsylvania?
• Final Thoughts On Flipping Homes In Pennsylvania

What Is Flipping Houses?

Flipping houses is the practice of purchasing a house at a markdown to its market price, performing renovations on the interior and/or exterior, and then reselling it for a profit.

The strategy, if done correctly, can be extremely lucrative.

Though the most common way to flip a house is with a single-family home, one can also flip a duplex, triplex, multi-family, or short-term rental. Across the United States, including Pennsylvania, there are various opportunities to purchase, renovate, and sell these houses.

Pennsylvania House Flipping Statistics

According to the 2021 Pennsylvania census, there are 5,770,601 housing units across the state. Of those units, 69.2% are owner-occupied. This indicates a strong desire among individuals in Pennsylvania to be home buyers instead of renters.

With such a significant demand for housing in the state, there is potential for fix and flip investors to generate substantial profits through the purchase, renovation, and resale of these properties at a higher purchase price. And, that is exactly what has been happening.

According to ATTOM, the flipping activity in Pennsylvania has increased over the last ten years. In 2020, over 1,600 houses were flipped in Pennsylvania, with an average revenue of over $50,000 per house. Now, based on the Q3 2021 ATTOM report, Philadelphia alone - over the course of a three-month period - accounted for 1,265 Pennsylvania flips for a whopping $127,600 in average gross profit!

That is staggering growth. One of the other major reasons so many investors have flocked to Pennsylvania to operate their house-flipping business is the state’s above-average foreclosure rate.

According to SOFI, in February ‘23, Pennsylvania saw over 900 homes go into foreclosure. As you’ll learn later in the article, a disproportionately high foreclosure rate generally translates into a fruitful ground for investors to acquire below-market value homes.

How To Flip Houses In Pennsylvania (7 Steps)

Whether you are a seasoned real estate market investor or a completely new beginner, learning how to flip houses in Pennsylvania doesn’t need to be intimidating.

If you want to learn how to flip houses in Pennsylvania, consider the following step-by-step guide.

1. Find A House Flipping Mentor
2. Research The Pennsylvania Housing Market
3. Find & Analyze Distressed Properties In Pennsylvania
4. Raise Capital To Fund The Deal
5. Close On The House
6. Renovate The Property
7. Resell The House

1. Find A House Flipping Mentor

Having a mentor is crucial when it comes to identifying lucrative properties for fix-and-flip investments within the Pennsylvania real estate market.

To find a mentor, explore online investment clubs and social media forums found on Facebook, Twitter, LinkedIn, and Instagram. Consider also approaching brokers, bankers, and other professionals for referrals. You might also find success paying for courses and networking events to meet other like-minded real estate investors.

While these methods may require some financial and time commitment, securing the right mentor will certainly pay its dividends.

Read Also: How To Build A Real Estate Network | Wholesaling & Flipping Houses

2. Research The Pennsylvania Housing Market

Before diving into the Pennsylvania market, consider educating yourself on the various trends, licensing requirements, property taxes, and neighborhood attractions within the area. A great place to start could be glossing through the various educational content embedded within local realtor websites.

Here is a list of the realtor associations in some of the major Pennsylvania cities and counties:

• Pennsylvania Association of Realtors
• Greater Philadelphia Association of Realtors
• Realtors Association of Metropolitan Pittsburgh

Next, you’ll want to compile market data and determine various pricing trends available within the Pennsylvania submarkets. Check out these links:

• Zillow’s Housing Data Research: Zillow provides a simple-to-understand breakdown of the housing market. The data offers historical insight into home values, forecasts, rental indices, inventory, list and sales prices, and even price cuts.
• Redfin’s Pennsylvania Housing Market Overview: The Housing Market page provides investors with everything from historical price trends to migration patterns.
• RealtyTrac’s Pennsylvania Data: RealtyTrac offers insight into the foreclosure situation and adds clarity to the types of foreclosures in the state.

Lastly, you’ll want to research Pennsylvania laws and licensing requirements applicable to local investors. Though getting a license is not required for flipping properties, getting one could be a great idea. As a licensed agent, you’ll have access to a number of resources (including the MLS) not readily available to other non-licensed investors.

3. Find And Analyze Distressed Properties In Pennsylvania

One of the main components of house flipping is knowing how to crunch the numbers to ensure you’ve found an attractively priced, below-market distressed property.

For this part of the process, you should focus on three items: assessing the after-repair property value, estimating the rehab costs of the project, and determining your MAO.

Step One: Assessing the ARV

The ARV is the after-repair value of the property. It represents the value of the home as compared to other nearby houses of similar configuration and similar quality. To calculate this figure, you should speak to local real estate professionals like real estate agents, general contractors, and lawyers. These professionals will have a good sense of your property’s potential value.

You can also gloss through websites such as Zillow and Redfin to see how similar houses are being priced in your investment’s neighborhood.

Once you calculate the ARV, you’ll need to estimate the rehab costs of the project.

Step Two: Estimate Rehab Costs

We’ll dive a bit deeper later in the article about various rehab tactics, but, in a nutshell, your goal for this portion of the due diligence period should be to assess which renovations will drive the most value to your project.

Your goal as a house flipper should be to properly estimate the neighborhood’s demands when it comes to amenities. It’s always smart to add a contingency buffer of 10-15% to your initial rehab budget to prepare for the unexpected.

Step Three: Calculate The MAO

The MAO stands for the maximum allowable offer and it is a formula used when calculating what price you should pay for a distressed property. This formula ensures the investor makes a profit in all market conditions, irrespective of the many moving variables associated with the flipping business.

The 70% Rule is simply an extension of the MAO. When calculated correctly, it ensures the investor makes at least a 30% profit on the flip. Here is what the equation looks like:

(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 and analyze as many deals as you can. To be successful in this business, you’ll need to constantly be on the lookout for distressed properties in attractive neighborhoods.

Consider checking out Pittsburgh or Philadelphia - two great up-and-coming communities worth considering.

4. Raise Capital To Fund The Deal

After you’ve found the right deal, it’s time to raise the capital from the right source. A few options include hard money, bank financing, private money, or joint venture capital.

Hard Money

Hard money loans are flip loans from non-bank lenders. Usually, these lenders can close very quickly and with more leverage than a typical bank. Keep in mind, though, interest rates on these loans can be as high as 15%.

Bank Financing

Bank financing is a great way to raise capital if you aren’t in a hurry. Because of country-wide regulations, the lending process can sometimes be pretty tedious. Expect a 45-day close (at least) and usually more modest leverage terms as compared to a hard money loan.

If you are looking to buy and hold the property - instead of flip it - a bank loan might be a good option. For flips, however, since the homes are generally in a less-than-ideal condition, they might not be eligible for bank financing.

Private Money & JV Partnerships

A private loan or an equity infusion from a joint venture (JV) partnership is a great way to raise capital. This capital base generally comes from a family member, friend, or mentor and comes with a great deal of flexibility.

These capital sources are usually easier to fund than hard money or bank loans because they are - for the most part - conducted as an unofficial I-O-U or equity share agreement, rather than a more tedious process with a mortgage note and lien on the property.

5. Close On The House

Once you’ve sourced the right capital, 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. Pennsylvania is what’s called an “all-inclusive” state. Meaning, the title insurance charge includes the cost of the search, the examination, escrow and settlement services, and the insurance risk assumed by the title insurer. It’s also important to note that, unlike many other states, Pennsylvania does not require an attorney to facilitate the closing.

Typically, what you’ll do is send the earnest money over to a third party and follow standard closing costs like getting an inspection and an appraisal. Then, after about 21 - 60 days, you’ll close on the property and begin your renovation.

6. Renovate The Property

When renovating the property, the ultimate guide should be to maximize your profit potential while simultaneously minimizing your downside exposure. The best way to do this is by researching the area to determine which renovations are crucial to your project and which can be avoided. Each item should then be scrutinized thoroughly to determine if its cost will generate an outsized Return on Investment (ROI).

Upgrades that are too extravagant will put the project over budget, and improvements that don’t separate the home from the rest of the competition will relegate the asset to mediocrity and ultimately hurt the sales price.

Consider the following list of high ROI capital expenditures for the Middle Atlantic region of the United States compiled by Remodeling Magazine:

• Garage Door Replacement: It costs about $4,139 to replace a garage door, but investors can expect to recoup about 92.6% of the initial investment when the home sells.
• Manufactured Stone Veneer: It costs about $11,595 to install manufactured stone veneer, but investors can expect to recoup about 91.0% of the initial investment when the home sells.
• Minor Kitchen Remodel: It costs about $29,701 to remodel the kitchen, but investors can expect to recoup about 74.7% of the initial investment when the home sells.

7. Resell The House

Once you’ve completed your renovation, it’s time to continue your real estate investing and resell the house.

The majority of residential fix and flip investors typically renovate and sell the house to owner-occupied homeowners. These buyers are typically the most motivated and aggressive.

How To Find Houses To Flip In Pennsylvania

There are a number of ways to find houses to flip in the state of Pennsylvania. Some options include: sifting through live listings on Zillow and the MLS, leveraging wholesale networks, and working with real estate agents.

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. Many investors also work alongside banks and auction sites to find upcoming foreclosures coming on the market.

Whichever strategy you employ, be sure to stay on top of the latest tactics, trends, and opportunities. The more houses you sift through, the better chances you’ll have of success as a flipper.

Do You Need A License To Flip Houses In PA?

No, you don’t need a license to flip houses in Pennsylvania, but it might be a good idea to get one anyway.

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 he or she markets and sells the property on your behalf.

Getting a license will not only help you avoid these fees, but it’ll also give you access to additional resources (like the MLS) not readily available to other investors.

Read Also: How To Get MLS Access: The (Ultimate) Guide

How To Flip A House In Pennsylvania With No Money?

Don’t have any money to flip your house? No problem at all! Here are some strategies and funding sources you should consider with no money down:

• Private Money Lenders: Private money lenders will sometimes fund 80% - 100% of the deal. It all depends on the comfortability with you as the sponsor.
• Hard Money Lenders: Hard money lenders are similar to private money lenders with one distinct caveat: they are slightly more expensive.
• Wholesaling: Though not technically a flip, wholesaling is a great strategy for investors with no money. Instead of buying a property, wholesaling involves a contract between the owner of a home and the investor. What you’ll do is find a property, put it under contract, and then assign the contract over to a new buyer for a small fee.
• Crowdfunding: Crowdfunding entails pooling money together with peers and other investors. This is a great option if you want to be the operator, but don’t have any money to invest.

What Is The Best Place To Flip Houses In Pennsylvania?

Pennsylvania is a very diverse state, with so many attributes and attractive cities. When deciding which place you should invest, you should consider the rate of growth, population, and median house price. According to Redfin, here are the fastest-growing cities in Pennsylvania:

• Reading, PA: With a population of over 94,000 people, Reading has grown 8% since 2017. The median home price is $165,000. Many of Pennsylvania’s famous parks are located in Reading.
• Allentown, PA: With a population of 126,000 people, Allentown is the second fastest-growing city in the state. The median home price is $205,000. Main attractions include Cedar Beach Park and Trexler Memorial Park.
• Harrisburg, PA: With a population of 50,000 people, Harrisburg is the third fastest-growing city in the state. The median home price is $220,000. Harrisburg has a rich history and is the capital of Pennsylvania.

Final Thoughts On Flipping Homes In Pennsylvania

Flipping houses is a fun and lucrative investment strategy. Pennsylvania, specifically, has a lot to offer investors when it comes to attractively priced houses, engaging residents, and desirable neighborhoods.

Do your research, learn from your mentor, engage in open dialogue with local brokers, and analyze every deal that comes across your desk. You might not believe it, but before you know it, you’ll be flipping multiple houses a year generating thousands of dollars in income.