What Kinds of Homes Get the Most Offers?
One type of home receives more offers than any other, according to a Sundae analysis of its marketplace data.
Want to maximize value in real estate investment property you plan to fix and flip? As you place offers on homes, you need to keep the end in mind. That means determining which homes will entice the largest number of buyers.
Sundae analyzed sales data from its own marketplace in California to see which properties received the most offers. These statistics from our June report show the percentage of homes in different size ranges that received five or more offers.
- 46.5% of homes between 600 and 1,000 square feet.
- 78% of homes between 1,000 and 1,400 square feet.
- 74.7% of homes between 1,400 and 1,800 square feet.
- 59.5% of homes between 1,800 and 2,200 square feet.
- 55.0% of homes of 2,000 or more square feet.
With interest in more space for post-pandemic living, there is a clear trend towards larger properties. But there is a sweet spot. Homes between 1,000- to 1,400-square feet are what Polina Ryshakov, Lead Economist for Sundae, calls “bread and butter deals.” These homes have a higher likelihood of turning a profit when resold due to their desirability.
How to identify a home with high potential value
There are many factors to consider when evaluating potential value. Each needs to be weighed carefully when searching for a property to flip.
A two-bedroom, one-bathroom that’s less than 1,400 square feet offers big possibilities for the investor willing to put in the work. Ryshakov noted that “you can frame in a primary suite and a bathroom to move it for a lot more money.” Adding the extra bedroom appeals to first-time home buyers. With a swath of millennials looking to buy their first home for their growing families, a three-bedroom, two-bathroom home is a hot commodity.
In today’s real estate landscape, “it’s also possible to add value with a fourth bedroom or a usable outdoor space,” says Ryshakov. According to Sundae’s sales data 74.7% of 1,400 to 1,800 square foot homes received five offers or more, pushing larger sized homes into “bread and butter” territory too. One 1,700 square foot home on the Sundae marketplace received 35 offers and another with 1,600 square feet on a cul-de-sac got 33.
COVID highlighted the need for more space and a bigger backyard. As the fourth bedroom or outdoor space functions as a work-from-home office, exercise room, entertainment room—or all of the above—its value rises. These value adds are where flippers stand to make the most money.
The phrase “location, location, location” most notably relates to real estate. Ryshakov recommends seeking an undervalued home in a walkable neighborhood or close to a school. Look for any home where you can envision a young family moving in and where you can add a bedroom and a bathroom.
Among the other things to look out for, according to Ryshakov, are homes in up-and-coming neighborhoods. Seek out areas with a lower crime rate and where a resident can walk to a cafe or restaurant.
Before making an offer, be sure to evaluate the deal
Of course, every investment has a ceiling. It’s important to understand the numbers when you figure your top price for an investment property at auction. To do so, you’ll want to start with the 70% rule. This states that you should not pay more than 70% of the After Repair Value (ARV) of a property. The ARV is what the house is expected to sell for after completing all work and renovations. You also need to consider repair costs.
A quick formula looks something like this: (ARV x 0.7) – repair costs = price not to exceed.
- Let’s say that the ARV on a property is $750,000. That means you shouldn’t buy it for more than $525,000 according to the 70% rule.
- In most cases, of course, you also need to deduct repair costs. Here, we’re assuming that you’ll spend $70,000 in repairs.
So the formula then becomes: ($750,000 x 0.7) – $70,000 = $455,000. This means that you shouldn’t buy it for more than $455,000 to turn a good profit with a safety net.
The 70% rule is a guide to get you to the right numbers. However, it’s best to go deeper and estimate all of your expenses as accurately as possible. You’ll want to figure in things such as repair costs (including a buffer), closing costs, financial costs, and carrying costs. See our guide to the 70% rule for a more detailed explanation.
Get ready to make your next offer
Bidding wars have become synonymous with post pandemic real estate markets.With historically low inventory and prices that keep rising, investors are jumping on everything. Cities throughout California such as Los Angeles and Sacramento are seeing frenzied bidding wars for starter homes.
Ryshakov recalled that “The most insane story I heard here in California was for an entry-level 1,400-square foot home in Citrus Heights in Sacramento. It received 122 offers. Right now, there is a lot of ‘FOMO’ or fear of missing out from investors.”
As new buyers continue to flood the market, investors are seizing the opportunity to create turnkey properties for their consumption.Understanding what appeals to buyers can help guide investor’s offers on homes.