Buying, renovating, and selling homes looks like a piece of cake on TV. Sure, there’s always that one unforeseen issue like a compromised foundation or an irreparable furnace threatening to eat into the buyer’s return on investment, but everything works out in the end and it’s off to the next episode. Here’s the truth: It’s entirely possible to lose money on a flip. And that’s especially true when you’re just starting out—even if you’re competing in a modestly dynamic market like Illinois.
Whether you’re flipping houses in Illinois or anywhere else, you’ll need to have the know-how and the right tools to find, value, and ultimately flip appealing homes. The key to flipping houses involves mapping out a winning strategy and executing it consistently. If you’re at a loss for what that strategy might look like in Illinois, read along as I walk you through the ins and outs of finding the best deals in one of the nation’s most interesting real estate markets.
How to Find Good Deals for Flipping Houses in Illinois
Experienced real estate investors are great at what they do because they follow a prescribed formula and rarely deviate from it. In my view, that formula needs to take into account the fact that good deals are often made rather than found. Prices and costs are often flexible, and doing the work to turn an average deal into a strong one is one of the most important house flipping skills you can have.
To get the best possible deal when flipping houses in Illinois, you’ll need to:
- Find an attractive submarket
- Define what a good deal is in the contexts of your submarket and your business
- Identify sources which will alert you about potentially good deals
- Make and then filter down a list of potential winners and pick one property to attempt to purchase
- Budget for the cost of renovations and the additional value renovations will add
- Negotiate with the seller to get the lowest price
If you’re not sure how to go about doing the items on this list, don’t worry. With enough practice, all of this will become natural, and I’ll be explaining the gist of each of them to you as we go along.
Picking The Right Area
If you plan on buying homes in Illinois, choosing the right location lays the groundwork for your journey.
Ripe neighborhoods may not always be the ones investors are currently flocking to. Instead, investigate areas on the fringes where new developments may be happening and a spillover effect could be in the making. If you happen to know of other real estate investors who are operating in an area, it’s a sign that there’s money to be made for new entrants. And luckily enough, there isn’t really anywhere in Illinois that’s completely saturated with flippers or other investors. So you don’t need to worry too much about getting completely boxed out of an attractive market.
Cities are particularly good places to get started with house flipping in Illinois. There’s plenty of demand for homes, plenty of sellers, and plenty of run-down properties that could use your attention. In particular, some up-and-coming areas in Chicago include Bridgeport and Humboldt Park. Venturing further out towards the city’s limits is where you’ll find the best bargains, but you may also struggle to find moneyed buyers there too. In contrast, downtown is surprisingly lucrative and full of dynamic demand, but you’ll need a significantly higher amount of financing to play ball, so it isn’t necessarily the best place for a new investor to start.
Keep in mind that there’s no rule against scouring the rest of the state for undervalued properties. Whether you plan on buying in Springfield, Aurora, or Northbrook, stick to locations near good school districts, public transport, and established employers. Hot neighborhoods may be overbought, but adjoining communities could yield a few properties that can be acquired at below-market levels. As a rule of thumb, prioritize looking in communities where there are a lot of companies providing services rather than industrial or agricultural products.
When in doubt, avoid deeply rural areas. There are definitely bargains out there, but newer investors will struggle with the fact that properties will need to be on the market for much longer before they sell.
Defining Your Goals
Not every property is right for every investor. You’ll need to be cautious and not overextend your finances or yourself, especially if you’re getting your business off the ground. I find that it helps to make a quick list that outlines what a good deal would look like.
For a new house flipping business in Illinois, for example, a good deal might look like a home that includes:
- A lower-than-average selling price for the neighborhood
- Minimal structural repairs
- Rising property values in the neighborhood or adjacent neighborhoods
- A motivated seller potentially in a state of preforeclosure
- Renovation needs that match the capabilities of your contractor
Of course, this list is just an example, and yours might look a little different. The point is to get you to start thinking about what you’re looking for before you dig into potential leads. In turn, you’ll be better attuned to the house-flipping process.
It’s also useful to write down a few features of a lead or prospect that you think are red flags. Things like major structural damage, a flaky seller, or a decaying neighborhood with falling property values are clear warning signs. Likewise, if your seller is demanding a much higher price than you think a home is worth, it’s a sign that you’ll have a difficult time negotiating with them.
Finally, when you’re defining your criteria for what constitutes a good flip, don’t be afraid to draw outside the lines a bit. Though it might not be in the traditional purview of house flippers, you should be on the lookout for industrial or commercial properties which might be lucrative to renovate into condominiums or homes—assuming you can secure all applicable re-zoning permissions. When there are other investors in an area scrambling to gobble up the most attractive residential properties, going for a bigger fish can be a smart move.
But your overriding concern should be to avoid biting off more than you can chew. We’ll get into that later, but for now, let’s learn more about finding properties that are roughly within your scope.
Finding The Right Leads
You’ll need a steady supply of high-quality leads if you want to make good deals on a consistent basis while flipping houses in Illinois.
There are a few approaches to finding good leads. I use the following sources extensively, and here I’ve ranked them in order of their overall impact and importance:
- Tips from other investors or real estate development agents
- Preforeclosure listings
- Mailing campaigns directed to homeowners
- Mass marketing campaigns on social media
- Foreclosure listings
- Passive mass marketing campaigns via billboards and television
- MLS listings
In a nutshell, networking with other investors is king, and that goes double for investors who you’re close to; they’re likely to understand your exact strategy and preferences. As an aside, especially once you get the ball rolling, you’ll likely find leads that you can’t handle at the moment, so be sure to pay it forward to other investors
Preforeclosure listings are also one of my favorite sources for leads. Preforeclosures are ubiquitous in Chicago, which means you’ll have your pick of the litter. Unlike foreclosed properties in Illinois, you won’t need to compete in an auction to buy preforeclosures. That makes the entire process much easier from start to finish. For distressed properties in and around Chicago, the Cook County Land Bank and Chicago forfeiture program stand out as two resources to dig up leads on undervalued or blighted properties. Once you’ve scouted out the neighborhoods that those agencies yield, be sure to study the comps and then look for outliers.
You’ll have noticed that I put MLS listings at the very bottom of my list. Don’t get me wrong, I screen regional MLSs all the time. The trouble is that when you hunt for leads on an MLS, you’re competing with everyone. Members of the homebuying public, private equity firms, other real estate investors, and even small businesses will be looking at the same opportunities as you are. And they might have more money or a more urgent need to purchase homes than you do.
Whatever method works best for you is the one that you should focus on. However, it’s recommended that you maintain contact with at least a couple of your non-preferred sources; it’s always possible that your preferred sources will dry up right when you need to fill out your dealbook a bit more.
Don’t Forget Your Budget
A prospect will only become a good deal if you’ve properly budgeted for it. In other words, you’ll need to draw up a few estimates for renovation and financing costs to see if buying a house at a given price point could be worthwhile.
It’s okay if your projections are off the mark; your budgeting skills will improve with practice. As long as you’re accounting for the major expenses of the flipping process, you should be in decent shape.
But how do you know what size of deal you should be working toward? That depends on how much financing you can bring to bear. If you’re working with a hard money lender, it’ll massively increase your purchasing power. On the other hand, working exclusively with the capital you have in the bank is a surefire way to incur fewer financing expenses, even if it ends up dramatically limiting the scale and flow of your business.
In my experience, the benefits you get by working with hard money financing means your business can grow faster. Still, you should draw up a few alternative budgets to see what the ideal mix of funding might be for one of your prospects and decide from there before you start flipping houses in Illinois.
Valuation And Negotiation
After determining your budget for renovations, you’ll need to do a valuation on the home in question. To be clear, your valuation is where you will calculate exactly how good of a deal your house flip in Illinois is capable of being.
First, your valuation of a property might result in a lower value than the sticker price the homeowner is looking to win from a sale. If that’s the case, your valuation can be used as a lever to drive the price down a bit during negotiations with the homeowner. Second, you can also make hypothetical valuations with the help of the numbers in your budget. If your valuation shows that an investment of $50,000 in repairs would raise the home’s value (and its ultimate selling price) by $80,000, that’s a big point in favor of making the deal.
In contrast, inaccurate valuations result in you leaving money on the table, overpaying for properties and potentially destroying your profit margin before it ever has a chance to come to fruition. Many investors, especially those who are newer, can gain a lot by working with valuation software that considers the state of the local market and automatically calculates important inputs about the house repairs to derive a value for a property. Even if the valuation you develop by hand is slightly different from the software’s figure, you’ll have an additional measuring stick which I find often comes in handy during negotiations with homeowners and other real estate investors.
With your valuation in hand, you’ll be ready to start negotiating with the homeowner. If you end up dealing with a stubborn seller, it’s highly recommended that you have a plan to turn a prospect into a good flip even if the seller never budges from their initial price. That way, if you do manage to get major concessions on the price during negotiations, it’s icing on the cake. It will also defuse a lot of the tension from the constant back-and-forth, which tends to make everything go smoother and faster as a result.
Keep in mind that your chances of hitting it out of the park with negotiations are not entirely in your control. Some sellers may be in a position to accept a reasonable bid and move on. Others may be entertaining offers from moneyed buyers or real estate investors whose valuation calculations were badly inflated or otherwise incorrect. Building a personal rapport with the seller is great if you can manage it, but even if you’re charismatic, it won’t always be possible. Don’t get too upset if a winning deal gets poached from your clutches—it happens to the best of us.
Logistics Can Make Or Break Your Margin
Once you’ve worked up the makings of a good deal, you’ll still need to follow through on it. And that involves executing a lot of logistical tasks while closing the deal with the homeowner. It’s crucial to go through these tasks quickly and efficiently.
The longer a property sits on the market, the higher your initial investment becomes because you’ll be incurring the opportunity cost of keeping your capital tied up in an unproductive asset. Moreover, your ongoing expenses in advertising, property taxes, routine maintenance, and basic utilities all combine to chip away at net gains. And the longer you hold onto a saleable property, your margin is likely going to drop further. Plus, longer hold times increase the chances of falling victim to unfavorable economic events like a housing crash.
Logistical issues are the most common point of failure I’ve seen, though they’re rarely insurmountable. A few delays with paperwork here and there might not add up into anything that erodes your profits, but they’re likely to make you wonder if you’re actually going to be able to follow through on a good deal. In particular, the reliability (or unreliability) of your contractor’s staff is a key logistical concern that you’ll be battling perpetually at the start of your house-flipping career in Illinois.
Contracting For Success
While flipping houses in Illinois a few years ago, I called a painter out of the phonebook. He took a deposit to do some interior work in one of my properties, and I’m pretty sure my money was promptly deposited with his bookmaker. I never saw him again, but I learned a valuable lesson: Find reliable contractors who charge reasonable rates, show up on time, and finish the job when promised.
If your contractors aren’t capable of doing what needs to be done on time, that “good deal” you’ve been salivating over could just as easily become a quagmire. So get your ducks in a row as soon as possible—preferably before even signing the closing paperwork.
You cannot afford to hire unreliable tradesmen who cost you time and dollars. It shrinks your bottom line and increases your blood pressure. Consulting with other real estate investors to find reputable workers is one way to address this issue, but you may find that the best contractors are already in very high demand.
Still, it’s worth trying to connect with other flippers through Chicago real estate investing clubs that can refer quality contractors to you. Referrals cost nothing, and word-of-mouth is the best form of advertising.
It’s Easier To Flourish When You’re Part Of A Team
When I first started my real estate investing venture flipping houses in Illinois, I had trouble locating motivated sellers of undervalued properties in promising neighborhoods. I didn’t have solutions for finding leads, determining the appropriate valuations, getting the financing I needed, or finding reliable contractor staff. That all changed when I became an independently owned and operated HomeVestors® franchisee.
As an independently owned and operated HomeVestors® franchisee, I get access to the nationally-known We Buy Ugly Houses® advertising campaign, which helps me find houses to flip in Illinois. By generating a constant stream of leads from the campaign, I don’t need to rely solely on my less-favored sources only to come up empty-handed.
Furthermore, HomeVestors® hooked me up with a direct portal to some of the best house-flipping financiers in the nation, enabling me to grow my business far more rapidly than I would have been able to otherwise. And that’s before even mentioning the HomeVestors® initial week-long training program, its proprietary ValueChek® software, and the massive network of fellow franchisees that you’ll have at your disposal if you become a Homevestors® franchisee.
If you’re considering starting a real estate investing business flipping houses in Illinois, request information about becoming a franchisee today.
Each franchise office is independently owned and operated.