Flipping houses in Texas can be a lucrative gig. Not only did the Lonestar State have the second-biggest GDP of any U.S. state in 2023, but from 2022 to 2023, it had the largest numeric population growth.
This is good news for home flippers. It means demand for housing is strong, and those who supply it may be able to turn a hefty profit. But home flipping is easier said than done. To help ensure your next flip is a success, follow these tips:
1. Choose the Right Market
Some Texas cities are better suited to home flipping than others. For example, Celina, TX, ranked first nationwide for fastest population growth between 2020 and 2023 (143.2%), while Big Spring ranked first for fastest population decline during the same period (-14.8%).
Similarly, some Texas markets show more favorable appreciation trends than others. For example, from July to August 2024, the median house price in the Dallas-Fort Worth-Arlington metro jumped 2.3%, while it fell 2.8% in Austin-Round Rock-San Marcos.
To help ensure your flip will be profitable, choose a Texas city with positive market tailwinds.
2. Get Good Repair Estimates
Renovation costs can make or break a flip. If they go over budget, you could end up losing money instead of making it. That’s why it’s crucial to get good repair estimates upfront, so you have an accurate idea of how much the rehab will cost, and whether it’s worth it.
Of course, repair estimates are only estimates. However, by reviewing the financials on past Texas flips and requesting quotes from local contractors, you can minimize the risk of budget overruns.
3. Follow the 70% Rule When Flipping Houses in Texas
Once you’ve estimated repair costs, you can gauge how much you’re willing to pay for a distressed property. Here, it’s helpful to follow the “70% rule.”
The 70% rule states that investors should pay no more than 70% of a property’s after-repair value (ARV) minus repair costs. For example, if your market analysis estimates a property will be worth $500,000 after $100,000 worth of repairs, you shouldn’t offer more than $250,000 for it ($500,000 x 0.7 – $100,000 = $250,000).
This provides a financial cushion to help ensure enough profit remains after reselling the property for the project to have been worthwhile.
4. Plan for Holding Costs
Holding costs are the ongoing expenses associated with owning property. They can include property taxes, mortgage payments, utility costs, home insurance, HOA fees, and more.
When flipping houses in Texas, you buy property intending to only hold onto it long enough to complete the needed rehab and resale. However, no matter how quickly you can get in and out of a deal, you’ll likely pay some holding costs.
To avoid being caught by surprise, find out exactly how much holding costs will be and then ensure you’ll have the funds to cover them.
5. Stay on Schedule
Another way Texas flippers can run into cost overruns is by falling behind schedule. With every day that’s added to the original timeline, your holding and labor costs can increase.
To avoid unnecessary delays, closely monitor work progress and adjust the schedule as needed. It’s easier to avoid delays when you can anticipate potential roadblocks.
6. Have Backup Exit Strategies
By definition, Fix & Flips are undertaken with the goal of reselling them for a profit. But what if home values or buyer activity fall and you’re unable to sell as planned?
For this reason, it’s always best to have a backup plan. For example, on top of relisting the property for sale, you could explore what it would take to turn it into a long-term rental or offer seller financing to attract buyers unable to qualify for a traditional mortgage.
While quickly reselling the property for a profit is still the goal, it never hurts to have options.
7. Secure Necessary Approvals and Permits
Before taking on a Fix & Flip, ensure the final product will comply with local zoning regulations and building codes. This is especially important for adaptive reuse projects (i.e., giving an old building a new purpose).
As a flipper, you don’t want to finish a project just to realize it’s not up to code or that you didn’t get the necessary building permits. In the worst-case scenario, you could get stuck with a property you’re unable to sell without extensive rework. To avoid legal trouble while flipping houses in Texas, consult local real estate attorneys and agents.
8. Prioritize Renovations With the Highest ROI
Not all home renovations are equal—at least from an ROI perspective. According to the 2024 Cost vs. Value Report, nine out of the top ten projects with the highest ROI are exterior improvements, suggesting home values are highly sensitive to curb appeal.
For example, renovations with the highest ROI include garage door replacements (194%), steel door replacements (188%), and manufactured stone veneer (153%).
As a home flipper, it’s best to focus on renovations that yield the most return. After all, ROI is ultimately what determines your success.
9. Check for Soil and Foundation Issues
Many areas of Texas have expansive clay soils that can damage home foundations. As a result, it’s best practice to check a house for foundation cracks and settling before buying it so you know what you’re getting into.
If the home purchase price is low enough, a foundation repair could fit into the flipping budget. In other cases, it may be a red flag and you’re better off moving on.
10. Flipping Houses in Texas? Get a Fix-and-Flip Loan
Buying a house in Texas can be expensive—even if it’s distressed. According to the latest data from Realtor.com, the state’s median home listing price is $370,739.
That’s why most Texas home flippers finance their deals with a Fix & Flip loan. These short-term bridge loans can fund the acquisition and renovation of a property just long enough for its eventual resale.
Not sure where to start? Contact a Texas asset-based lender like ABL today to learn more!