To make the first deal, are you willing to pay a little more

19 Replies

I've been working to find and make my first deal happen. With the numbers still working, but tighter, are you willing to pay a higher price to make that deal happen?

@Jackson Howell What type of investment are you planning for your first? I always tell people to start out with a rental property. If you mis-calculate your numbers or something comes up on your first deal, it's the difference between your breakeven point being a few months further down the road and having to write a check in order to sell your property, as in the case of flipping - if things go south. 

@Jason Hirko this is a fix and flip with a back up plan as a rental.  It's a modest house for a modest price in south, GA.  Asking price was 39k on a foreclosure.  There are multiple offers in and bank is asking for everyone's best offer.  We have offered 30k.  My fix and flip calculator says our highest offer should be 31k which includes a 15k profit after it resales.  So we do have some room for movement but I know that 15k could disappear fast.  It would be a rentable home which is why I have the rental part as a back up plan.  


@Jackson Howell I would suggest your problem isn't the amount of profit, but the percentage. You're concerned about making 'only' making a 50% profit. That's because you're dealing in such small numbers and a few unexpected big ticket items could wipe that out. Most investors I work with are looking to make 20-30% on each deal. If you can rent that thing out for $500-600 a month, I'd do that over flipping it every time. 

@Jason Hirko thanks for the insight.  That's the average rental fee for the area.  How critical is it to make that decision before hand.  I would think its important to make a decision on what we want to do as that would determine the quality of the materials used in areas such as flooring and kitchen.  

@Jackson Howell A lot of investors go into buying a flip saying that if something big comes up, it still works as a rental. But you're right - you don't want to put granite in a $500/mo rental...

@Jackson Howell It's important to know which direction you're going to go before purchasing. How you purchase can make a difference, your interior furnishings on a flip may be a little nicer than the interior furnishings on a low-priced rental, meaning you need to know if you're spending more or less on this property. 

Also on the $15k profit, Is that after tax or before? That also makes a difference. 

I'd have this planned out especially as @Jason Hirko pointed out, On small dollar value deals like these, you can end up getting nothing very easily. Map out a couple of different exit strategies to see if you can offer more money and still make a desired profit.

@Ray Johnson  - I have not taken into account taxes - I will be sure to add that in - thanks for the feedback

 @Jason Hirko - thanks again for the feedback - 

This helps me clarify what I need to do to finalize my strategy on this one.

Why would the first deal make any difference here?  If you wouldn't (and shouldn't) pay more for any other deal, why would you pay more for your first?

I agree with @Joe Villeneuve

So many things can go wrong with a flip that you actually want to be MORE conservative instead of less, specially with your first deal. Getting a bad deal will set you back not just money-wise but most importantly, you will lose precious time when you could be doing multiple deals already.

Having said that, define your exit strategy upfront because that determines how you enter the deal. 

I would fix-n-flip around the median price point. Low end houses are harder to sell as they appeal more to renters and landlords. High end houses on the other hand might be slower to sell (higher DOM).

What is the median price of single family homes in your area? You can safely flip houses within +/- 50% of that price. For example, if the median price is $150,000, then fix-n-flips will generally work for houses priced $80,000 to $230,000.

@Joe Villeneuve - right, the first deal is always the hardest has been a common saying that I've heard and it's ringing true with me. Is getting the foot in the door and getting the first deal under my belt with everything that I will begin to learn worth the extra money I would invest even if it's at a lower ROI in the end. Thats what I'm trying to weigh.

don't go up (much).   in the trading industry the term FOMO exists when buyers pay more when the asset (stocks) is already climbing, FOMO = Fear of Missing Out.   Never buy due to FOMO (Emotions), let it pass.

Given it's your first, I say take your time.   the more offers you make (and analysis), the better and more confidence you will have on your number, and stick to it.  wait for the deal.

This is your first, so you want to be successful, and careful.  

@Jackson Howell I agee with everyone else. The margins are slim. Would the numbers work out if you were to use the BRRRR strategy? If so I would do thIs as a rental. Once you pull your money out, look for a good flip.
You Would certainly do much better renting this out as other suggested . 15k on a 31k house . Dang Your getting awfully “ greedy” on that . We are investors we never pay above what it’s worth . Money is made when you buy not when you sell
@Jackson Howell another thing to consider is short term cap gains in taxes. It may be a good idea to hold for a year by renting. Then selling it so you can 1032 exchange it for your next property thereby avoiding cap gains altogether?

Personally I would never increase an offer to a seller asking for everyone to come back with their best and highest on an investment property. To me that is just a sucker play.

@Jackson Howell I'm curious how much rehab you're estimating to bring it up to rental condition. Also, what's the difference in rehab grade that you'd have to perform between rental condition and flip condition. Ideally, if keeping it as a rental is a backup plan, I'd hope it wouldn't be WAY over-remodeled.

You're right though, a 15k margin for a flip is really small considering time, effort, and cash put up. I would suggest seeing about getting properties off market if you could.

Thanks everyone for all the insight and advice. Im going to stick with my number and not go up. if I get it, then I will rehab for rental which I believe i can do for 10-15k. I do believe the BRRRR strategy would be a good plan on this one. Thanks again
@Jackson Howell If you are looking to ease yourself into the market, higher price point will insure you a better neighborhood and less headache with tenants, assuming your strategy is Cashflow/ buy&hold. In my opinion, the first deal should always be a little easier, before you increase your tolerance to something more risky with higher reward potential.

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