California is one of the most dynamic real estate markets in the US, making it perfectly suited for flipping projects.
But there is no shortage of traps and pitfalls to be negotiated along the way.
An abundance of property developers seek their riches via flipping projects making the market ultra competitive.
The big cities are full of extremely diverse neighborhoods.
It is essential prospective flippers possess a deep understanding of where they are buying and to whom they are catering.
And an excess of red tape and strict regulations means that any developer trying to take a short cut could instead find themselves out of pocket as their flipping projects run into significant road blocks.
So how do you find the best properties to flip in California?
Let’s take a closer look.
Research the California property market
An intimate knowledge of the local market is a property developer’s most valuable asset when scouting potential buys.
Analyze price movements over the previous three to six months and beyond, looking at areas with the potential for growing demand and low inventory.
Focus on neighborhoods with strong job growth, government spending via infrastructure projects and ones with desirable schools and amenities.
Understand that the most sought after hills or waterfront locations may have limited profit margins because of their high acquisition costs and slow appreciation.
Saturated markets such as San Francisco are tough for flippers, who may prefer to target the following:
Emerging markets – Sacramento, Fresno and Bakersfield offer buyers affordability
Gentrifying areas – Urban neighborhoods undergoing revitalization such as those in parts of Oakland or Highland Park in Los Angeles
High growth suburbs – Suburban areas close to major hubs such as Riverside or Chino Hills that offer lower costs and are in strong demand
Know your target buyer
Before buying a property, visualize what you want to create and ask yourself, who is my target buyer?
It may be first-home buyers looking to break into the market in an affordable neighborhood with high demand.
It may be upscale buyers demanding a more luxurious residence in desirable locations like Los Angeles or Orange County. Expect your renovation costs to be higher.
Or it may be investors attracted by the income potential offered by multi-family units or properties with an ADU (Accessory Dwelling Unit).
Consider what your specific buyer covets when purchasing property.
It might be an open floor plan, energy efficient features or proximity to schools and services.
Work with local experts
Industry professionals can bring insight that you may have overlooked or disregarded despite extensive research.
Build relationships with real estate agents who deal extensively in foreclosures, probate and distressed properties to get a jump on your competition.
You should also consider talking with:
- wholesalers with access to off-market deals and ‘fixer-uppers’
- contractors who can assist with accurate estimates for repairs to help you better assess whether a property is worth pursuing
Target properties below market value
It seems obvious but when competition is high and emotions run higher, even experienced flippers can be tempted into overpaying for a property.
Areas undergoing gentrification are preferable to already established neighborhoods in the top end of town.
Look for foreclosures, short sales and homes with cosmetic damage that can be easily repaired.
Motivated sellers who need money fast due to financial issues, relocations or with an inherited property are ideal targets.
Foreclosure auctions in California can also yield excellent deals but ensure you have ascertained they do not come with any unpaid liens or repairs.
Calculate the ARV (After Repair Value)
The ARV is the estimated value of the property after renovations and should help you determine the viability of the project.
Use the 70% rule which decrees you should offer no more for the property than 70% of the ARV, minus the estimated cost of repairs.
Maximum purchase price = (ARV x 70%) – Renovation Costs
Hence for a property with an ARV of $500,000 and estimated renovation costs of $50,000, the maximum purchase price would be $300,000.
Always thoroughly research comparable sales (comps) in the area to more accurately estimate the ARV.
Consider renovation potential
Consider the type and scale of renovations required at a property to maximise your return on investment.
Cosmetic fixes such as paint jobs, new flooring and landscaping improvements often provide higher returns than homes needing structural repairs.
California’s thirst for ADUs makes properties with large lots or garage conversions particularly valuable.
Stick to upgrades that align with the vibe of the neighborhood.
Guard against over-renovating a property, potentially pricing it above what buyers are prepared to pay.
Embrace technology
Modern tools make it easier to identify profitable properties so use them!
MLS (Multiple Listing Service) Searches – use keywords like ‘fixer-upper’, ‘as-is’ or ‘TLC’ to identify targets
Real estate platforms – sites such as Redfin, Zillow and realtor.com allow you to set alerts for properties that meet your criteria so you never miss a potential deal
Data analytics tools – Platforms like PropStream or DealMachine can provide useful insights into off-market deals, owner information and property values
Account for costs and regulations
If you fail to plan, you plan to fail.
California’s stringent regulations and higher taxes can quickly erode a skinny profit margin.
Always check what permits are required before buying into flipping projects – they vary from city to city and can quickly accumulate.
And don’t forget about holding costs such as property taxes, insurance, utilities and the cost of your loan while your property is being renovated and sold.
Working with a real estate attorney or tax professional familiar with California’s real estate laws can help prevent a nasty and expensive surprise.
Secure finance early
Finance for flipping projects often comes from hard money.
That is because it can be approved fast, often with 48 hours, and relies on a property’s ARV and the borrower’s ability to repay the loan rather than their credit history.
Hard money is a powerful tool in every flipper’s kitbag because it gives them the upper hand when negotiating.
Sellers are more likely to accept a cash offer without any strings attached.
Work with the best in the business
Whether you are an experienced flipper or just dipping your toes into the venture, you really should consider teaming up with the experienced professionals at Equidy.
No-one knows more about property development in California than Equidy.
Equidy has an intimate and personal history with property, and has covered all aspects of real estate and property development in California for more than 40 years.
Equidy is also a hard money lender with one of the most respected and enviable reputations on the west coast.
They stand by their core belief that anything is possible and they strive to prove it every single day.
Even in challenging economic times, they love to reward entrepreneurship and always help their clients crystallize their wealth creation dreams.
But best of all, Equidy is not just a financier.
They have an intimate knowledge of the industry and work closely with their clients to ensure they select the right flipping projects to maximise return on their investments and efforts.
They also work creatively with them every step of the way, providing their wealth of knowledge and support network as their clients’ flipping projects take shape.
Equidy enjoys long and established relationships with serious investors, sellers and real estate professionals while leveraging their reputation and trust, using clear communication to minimise the risk to all parties.
Contact Equidy today to book your free strategy call.
