Oh, the thrill of a new project! For those hooked on breathtaking home makeover transformations, home renovations scratch the itch.
With a viewership of 1.3 million, HGTV is less about the G and more about the H with the bulk of its programming geared toward buying, selling, or remodeling a home.
Texas-based stars of the hit show Fixer Upper began their farmhouse chic empire on HGTV. The Magnolia complex in Waco is now a mecca for Chip & Joanna fans who come from all over creation to snag branded merchandise.
But Waco doesn’t hog the market share for house flipping. Last year, WalletHub ranked the best locations for house flipping and of the top 100 cities, 11 of them are Texan!
So how does someone get in on the profitable gig of flipping houses in Texas? Let’s roll up our sleeves and get to work.
Do You Need a Real Estate License to Flip Houses?
Any project begins with a checklist. We want to make sure that we cover all the bases.
With a home sale being the end result of a home flipping project, this raises questions about requirements to flip houses (such as real estate protocol). While having a real estate license gives house flippers a leg up, you can flip houses without one.
Obtaining a license for flipping houses in Texas is an investment of time and fees, but the endorsement does have its perks.
- Save money on agent commissions – Being your own agent means not having to hire one. So money in your pocket.
- Tribal knowledge of regulations – Intimate knowledge of how the real estate market works helps you make the best decision regarding property disclosures and permits.
- Networking – Who knows who the best contractors are? People who sell houses do! Being a realtor means having important connections.
- Consumer confidence – The real estate process can make buyers nervous. Having the guidance of a realtor makes it feel less intimidating and risky.
- MLS access – Multiple Listings Service access is for realtors only. This is where you can see newly listed investment opportunities and observe trends in the area.
How Much Money Do You Need to Flip Houses in Texas
There are dozens of line items in a house flipping budget including real estate expenses and repair costs. Let’s begin by looking into how much it costs to acquire a property.
Median Home Value in Texas
In 2019, Texas home values averaged $197,300 with a 4.2% price increase anticipated for 2020. Other costs are tacked on such as purchase (title, appraisal, inspection, etc.) and holding costs (property taxes, loan interest, insurance, HOA dues, etc.).
Foreclosures are of interest to house flippers because they tend to sell below market value. As of now, the average value of properties up for foreclosure in Travis County is $293,125 with the lowest current listing at $31,967.
Keep in mind that a dirt cheap house may be in very poor conditions meaning an increase in repair costs.
Repair estimates are elastic as it all depends on the condition of the home and what buyers are looking for (Example: granite countertops became a standard kitchen feature).
Factors such as extensive repairs lengthen the time it takes to finish the renovation and get it ready for sale. Keep in mind that the longer it takes to get the house on the market and sell it, the more holding costs (like loan interest) will accrue.
Examples House Flipping in Texas
To give you an idea of what this would look like, we’ll go over some real-life Texas home flips.
In Austin, Little City Investments purchased a property for $150,000 and spent almost $50,000 in repair costs. They listed the home for $289,000.
In Richardson, a couple purchased a single-story home for $98,000 and spent $30,000 for the rehab. They listed the property for $159,000. The expected profit is $31,000.
For a more detailed picture of what a house flipping budget entails, check out the House Flipping Spreadsheet.
House Flipping in Texas By City
Now we drill down into how house flipping fares across the state. We include how each city scored for WalletHub’s report. They were evaluated according to market potential (such as ROI), typical renovation costs, and quality of life (desirable place to live).
Annually, an average of 55,000 people become Austinites. However, the looming recession may slow down this steady migration.
RedFin chose Austin as a site for its iBuyer house flipping property acquisition tool. With such systems, the property owner gets an instant offer and RedFin gets to grow its property flipping inventory.
As of February 2020, the median list price for Austin area home sales is $327,140. Foreclosure auctions have doubled since last year.
WalletHub Ranking for Austin:
- Market Potential: 157
- Renovation & Remodeling Costs: 80
- Quality of Life: 17
Because Austin continues to be a popular place to live, competition for acquiring properties is likely to be fierce.
What is not in your favor as a home flipper in Houston are the high real estate taxes. The longer it takes to sell a property, the more taxes will chip away at profits.
Zillow rates the Houston housing market as “cool.” The median home value currently at $191,161 up 2.6% from last year and is expected to climb another 3.6%.
However, Houston also has a high rate of foreclosure auction sales which have more than doubled from last year.
WalletHub Ranking for Houston:
- Market Potential: 168
- Renovation & Remodeling Costs: 102
- Quality of Life: 138
Houston’s foreclosure rate offers home flipping opportunities.
An incline in median home value and property costs also being lower than average makes San Antonio a fertile area for home-flipping profits.
The median home value in San Antonio is currently $186,576 which is a 3.7% increase from last year. Zillow forecasts another 3.5% rise for 2020. Foreclosure auction sales are on the rise for Bexar County.
WalletHub Ranking for Houston:
- Market Potential: 144
- Renovation & Remodeling Costs: 27
- Quality of Life: 98
Tobin Hill, Monte Vista, and Alamo Heights have been identified as the best neighborhoods for home flipping in San Antonio.
Boasting a combined population of nearly 8 million, the DFW area is the 7th largest metropolitan area in the United States.
While the Dallas-Fort Worth area as a whole has a median home value of $140K, Dallas is more expensive at $202K. Zillow reports that the housing market in Dallas has cooled with a 2.3% increase in home values since last year plus a prediction of a 3% increase in 2020.
WalletHub Ranking for Dallas:
- Market Potential: 126
- Renovation & Remodeling Costs: 131
- Quality of Life: 93
WalletHub Ranking for Fort Worth:
- Market Potential: 141
- Renovation & Remodeling Costs: 57
- Quality of Life: 47
House flipping in the Dallas area has seen successes of close to 50% ROI in some zip codes. In the previously mentioned example of the Richardson flip, the estimated ROI was 24.22%.
Would you have guessed Laredo (with a population around 261K) to be the highest-ranked city on WalletHub’s house flipping report? It sits in the number 22 spot of 172 cities evaluated.
Laredo’s Zillow status is “very hot” with a current home value index of $155,930. Home values dropped -2.6% over the past year, but values are expected to rebound 2.2% over the next year.
WalletHub Ranking for Laredo:
- Market Potential: 169
- Renovation & Remodeling Costs: 40
- Quality of Life: 69
Dallas Business Journal called Laredo the “Flip Capital of Texas” with a 9.5% flip rate.
How to Make a Profit Flipping Houses in Texas
While remodeling skills are handy in rehabbing a house, research is what’s most important in turning a profit with house flipping.
What You Should Research
- Know the neighborhoods: Take the time to study market factors in your area. For example, houses in better school districts are ideal investments.
- Scout for homes: Select your target neighborhoods and keep an eye out for opportunities. Know what to look for on the MLS (should you get your real estate license). If you have access to capital, advertise your willingness to buy properties for cash.
- Network: Find contractors, home inspectors, realtors, title companies, attorneys, etc. to join you on your home flipping journey.
- Properly assessment: Bring your trusty contractor along with you to estimate rehab costs.
- Inspection discovery: A professional inspection will uncover any issues with the property that would interfere with the final sale.
- Explore financing options: Funding options include hard money lenders, private money lenders, conventional loans, real estate crowdfunding loans, etc.
- Shop around: What are the most economical ways to secure home improvement materials and supplies?
The 70% Rule
Use the After Repair Value tool when evaluating a potential flip property. This determines what offer can be made on an opportunity yet still be profitable.
Example: A home’s expected value after repairs is $100,000. So 70% of the ARV is $70,000. You then subtract expected repair costs and the profit goal from that amount. Let’s say you expect the repairs to be $20,000 and want a profit of $10,000. After those deductions, we calculate $40,000 as the most we can offer for the property to make our target profit.
As a beginner, it’s wise to start with properties that require simple renovations and with an expected yield of 30%
How to Tell if a Property is Worth the Investment
When evaluating an opportunity, you’ll need to take certain factors into consideration such as the previously mentioned ARV formula.
Another way to determine if a property is profitable is to calculate the repair cost per square foot. $20 per square foot is the standard. If the ratio of estimated repair costs to the total square footage exceeds $20, this is a red flag.
Holding costs should also be considered. Calculate how much you expect to pay while the property is in your possession. This includes loan interest, property taxes, HOA fees and maintenance, insurance and utilities. Such costs are reduced in areas with no HOA and lower property taxes.
As they say, “Location, location, location.” Is this a place someone would want to live? Crime rate, commute time, and school district quality are some of the main factors that determine the resale value of a home.
When deciding on a project property, take all the above factors into consideration and seek advice from those who have experience.
Ambition the Size of Texas – Are You the Next Home Flipper?
HGTV house-flipping stars (like Texas’ own Chip and Joanna Gaines) have amazed us with before and after footage of their makeover projects. They’ve shown us how to snag the ideal fixer-upper and everything that goes into repairs and upgrades.
We’re here to help you learn how to start flipping houses in Texas with our house flipping business plan!
When you’re ready to get started on your first home makeover adventure, Captain Hook is your fast and reliable source for dumpster rental in Austin. Check out our hook-lift dumpster system and capacity size options!