Better to rehab and flip in a more expensive neighborhood?

Question

I was wondering from you guys if it was better to rehab and flip in modest/bad neighborhood vs doing the same in a better neighborhood?  Are the profits better, provided you could find a deal?

Michael Pommier · Answer

It does not matter if the neighborhood is cheap or expensive. It matters  if the deal is right and if the area your buying sells quickly at that price range. Before you put a bid in  check with a realtor that you trust and see how many days the houses in that area are staying on the market. Make sure you compare apples to apples same square footage bedrooms etc.

Will Barnard · Answer

Without all the details, this question is difficult to answer. Some of the answers here are coming from people in another state from you, so keep in mind their "higher end" price points may be our "hood" price points. CA has much higher price points for RE than most other areas, as such, a luxury market flip in some states could mean $400k exit and here, it would have to be well over $1M.

That all said, one of the most important factors in choosing your flips is how easy it will be to exit out. Generally speaking, the nicer neighborhoods, low crime, best schools will allow for the largest quality buyers pool and that makes for an easier exit. As another stated, the cash on cash may be slightly higher on the lower price points, but the total cash return is too, so you must evaluate each and make an informed decision once you have both numbers side by side.

CK Hwang · Answer

Hey Terrence, I do tend to flip in the nicer areas of OC. Not the absolute high end but middle-upper end ie 600-800K mark.

As far as profits go, I find in absolute dollars, yes, it tends to be a little better, however as a percentage return, I generally find doing the lower priced ones gives a better percentage return.

But personally, profit margins actually probably factor in only as their third or fourth most important thing for me to consider when I'm looking at a flip. I normally start off by gauging liquidity, quality of asset, rental yield, then finally profit margin. I always try to make sure my getting out is easier than my getting in.

And these factors can vary significantly between higher end homes and lower end homes, often for me, it makes sense to get a lower return per flip but have a higher quality collateral. But that is just my preference.

Brian Davis · Answer

Just a quick thought -  I see a lot if people making note of the days on market for a specific area or neighborhood. But something to remember is, if you get a great deal and can undercut the market, days on the market will become less relevant.  It will come down to a deal.  What is the discount?  This is all that really matters. Whether its a 12k purchase in a 60k neighborhood or a 800k purchase in a 1.2M neighborhood.   Just neef a deal.

I came to this post because I am wrestling with focusing on larger projects or sticking to what I have been accustomed to.  It feels like theres upside and downside.

-Reduce the amount of projects we need to do to make the same money

-Stick with the 150k average project cost and be able to spread the risk among more properties.

I would imagine it will be a slow movement upward in the business and take what we can.

Had a minute and wanted to share a thought.

CK Hwang · Answer

My vote is for Redondo Beach, but that is just me. But some investors do make money flipping in lower end neighborhoods in LA but it's really a market segment i am not familiar with.

Personally, I try to avoid flipping anything that I am not happy to own for the next 20 years if I have to. And only last week, this principle saved my skin on a property I made a huge mistake on early in my career. As a result, I just stick to nicer neighborhoods.

Verna M. · Answer

I used to think that too. That houses in the ghetto don't sell.

Well I used to live in a very rought part of Pasadena.  I actually installed bars on the windows after my house was broken into twice in the first year I lived there.

when I sold it I got multiple offers!  One from a family that had just sold their home in Inglewood.  Who knows where their buyers were from.

Terrence Evans · Answer

@Will Barnard

@Verna M.

@CK Hwang

Thanks... I know the question is general but I was just curious what the response was going to be.

I was just wondering, all things being equal, is it better to do Redondo Beach vs South LA or Wilmington.  I just see a fair amount of supply in those areas.  Less so in the beach cities.  But then again my search parameters are probably incompatible with the Beach Cities too. And i do see alot of flipped props in those poorer areas.  There has to be a limit to the desire of people buying homes in those areas vs a beach city.Thanks for all the responses

Verna M. · Answer

what is your risk tolerance and  how much money do you have have access too? (Rhetorically!) Im curious about the same thing and my thoughts so far has been

Look at how long houses stay on the market before they sell in the neighborhood you're looking at.  What are the comps? Is it a trendy area where poor schools and high crime don't matter? Or is there a giant employer/ school near by to make up for the rougher 'hood?

Or is it a flat outbwar zone with heavy gang activity or too far from any sort of good paying job. The industries in so cal are aerospace, the movie biz and education.  Many people move here to get into the UC/CSU system, try to be famous or work at one of the aerospace corps.

Bill Fennelly · Answer

The devils in the details, or in these cases the data, so it would depend on the back end numbers...however, jumping up price bands may do away with FHA and VA buyers at 3-5% down and attract conventional Buyers with 20% + down...just my opinion !

Better to rehab and flip in a more expensive neighborhood?

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