“Flipping” a home seems simple enough – you buy a house that needs some work, you improve it, and sell it. Trying to fix and flip in Silicon Valley changes the equation a bit because of exorbitant home prices. Flipping a home in the Bay Area puts a lot of money at risk, but if its done right the reward can be huge.
Sure, buying and selling your personal residence can be fun, but little in real estate compares to the satisfaction of buying a home, putting your unique stamp on it through renovation, and quickly selling it for a hearty profit. There’s money to be made – or lost – depending on how much homework you do and the quality of the team you choose to help you. (Make no mistake, when “time is money,” you need a team – contractors, handymen, builders, Realtors, and, oftentimes, accountants and real estate attorneys – to save you from expending far too much time, energy, and, ultimately, money on your fix-and-flips.)
Historically, Silicon Valley is a high appreciation market. Nevertheless, don’t buy assuming appreciation. Rather, if you’re buying the right properties at the right prices, you should make money even if home prices drop. If you overpay when purchasing a property to flip and the market subsequently dips, you may quickly find yourself in a world of hurt. Given Silicon Valley home prices, applying the fundamentals – identifying the right deal, utilizing the right financing, and obtaining and utilizing a competent team – are especially important. Those flipping a house for the first time often misjudge the time necessary to complete the deal and underestimate the many costs – of purchasing and closing on the property, loan costs, repairs and improvements, insurance, pro-rated property taxes, maintenance costs, selling costs, and, in some cases, HOA fees. Surrounding yourself with experience you trust is the surest way to avoid these pitfalls.
Now, fixing and flipping a house in Silicon Valley offers the opportunity to turn a bigger profit per deal than almost any place in the country, but with the potential for sizable reward comes sizable risk. A few things should be noted when considering flipping a home in Silicon Valley. It probably goes without saying, but a more expensive home will require greater investment in down payment and interest. With investment loans often requiring 25% down or greater, even the most distressed single family home will likely require a six figure down payment. And, in neighborhoods populated with predominately upscale homes, high-end materials and labor may be necessary for the home to conform. High-end materials and labor often cost high-end prices, and high-end remodels take longer to complete as there are fewer contractors qualified to complete these jobs. When repairing and remodeling any home, it is important to obtain bids (in writing) from multiple contractors and, where possible, utilize contractors who have repeatedly produced quality and timely work for people you trust.
So, where do you find properties ripe for fixing and flipping? While deals can be found off-market and through zealous networking, the overwhelming majority of Silicon Valley fix-and-flips are found on the MLS. Yes, the MLS, not FSBOs, which account for less than 10% of home sales. Sure, there is plenty of competition on the MLS, but deals can be found if you stick to the fundamentals and surround yourself with a highly competent team. If you are not an agent well versed in the Silicon Valley market, hire the best agent you can find to be your advocate and fiduciary – but make sure they understand investment properties and have an investment mindset. Fixing and flipping houses is not a solitary endeavor, and surrounding yourself with experienced investment-minded practitioners you can trust is key to your short and long term success in this high risk/high reward market.