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Shanda T.
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Trying to narrow down area for first flip

Shanda T.
Posted Nov 2 2022, 15:47

Hi all,

I am so excited to get started on my dream of real estate investing! I live in Santa Cruz, Ca. Very expensive place to flip or buy LTR. I am trying to decide on another area close to me for that makes more sense economically. Looking at Modesto possibly?? Anyone else in my area that has started out and had success within a few hour radius? 

Thanks in advance~ Best to all

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Nathan Gesner
  • Real Estate Broker
  • Cody, WY
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Nathan Gesner
  • Real Estate Broker
  • Cody, WY
ModeratorReplied Nov 3 2022, 05:00
Quote from @Shanda T.:

Welcome to the BiggerPockets forums!

This isn't the greatest time to start flipping. New flippers make a lot of mistakes with paying too much for a property, not accurately estimating repairs, taking too long to make repairs, and then selling for less than anticipated. The market is cooling off and sales prices are dropping. Meanwhile, material costs are up. If you're off on your calculations and the market slows down too much, you may be stuck with a property you have to sell for a loss.


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Shanda T.
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Shanda T.
Replied Nov 3 2022, 07:03

I was afraid of that….maybe I just look for a LTR for now. Thank you for your thoughts. I appreciate it. 

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Eliott Elias#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
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Eliott Elias#3 BRRRR - Buy, Rehab, Rent, Refinance, Repeat Contributor
  • Investor
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Replied Nov 3 2022, 07:15

Look into secondary and tertiary markets to buy something more affordable. You can succeed in any market, even if there's 100 people there. Just have to buy right 

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John Williams
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John Williams
  • Real Estate Broker
  • Clarksville, TN
Replied Nov 3 2022, 07:27

Check out Clarksville, TN if you are considering out-of-state. We are seeing a lot of folks, who are in a similar situation, analyzing our market. I always say that Clarksville is where cashflow meets appreciation. We have a very well-balanced, stable, recession resistant market!

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Ramsin Jacob
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Ramsin Jacob
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Replied Jan 9 2023, 02:25

You're making a common misconception by thinking it is safe to go into a lower priced market like Modesto. With interest rates increasing, the people who are affected the most are those lower end buyers. Believe me, I have listings all throughout the Bay Area, from Oakland, to San Jose, to Redwood City, you name it. The more expensive the house, the more traffic I had. Wealthy buyers are not phased with interest rate hikes. Santa Cruz is not very expensive compared to the Bay Area. I have sold over $50m worth of fix/flips in the Bay Area. You need to just find a property with a large spread, minimal costs, since you are new in this business you need to find a house that only needs cosmetic repairs that'll take no longer than 2 months for you to complete and list on the market. Looks for areas with good schools. Inventory is extremely low right now, so if you find one 30% below ARV, jump on it.

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Chris Levarek
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  • Phoenix, AZ
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Chris Levarek
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  • Phoenix, AZ
Replied Jan 9 2023, 04:56

Flips will be tough right now. Most markets at at the point where price has yet to come down but interest rates are high. Properties are thus sitting on the market longer as buyers and sellers try to wait each other out.

 Makes holding a flip a little tough especially for the inexperienced.

That being said, investing out of state could be an option to avoid some of this. Perhaps in some of these markets : https://www.biggerpockets.com/...

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Replied Jan 10 2023, 13:30
Quote from @Ramsin Jacob:

You're making a common misconception by thinking it is safe to go into a lower priced market like Modesto. With interest rates increasing, the people who are affected the most are those lower end buyers. Believe me, I have listings all throughout the Bay Area, from Oakland, to San Jose, to Redwood City, you name it. The more expensive the house, the more traffic I had. Wealthy buyers are not phased with interest rate hikes. Santa Cruz is not very expensive compared to the Bay Area. I have sold over $50m worth of fix/flips in the Bay Area. You need to just find a property with a large spread, minimal costs, since you are new in this business you need to find a house that only needs cosmetic repairs that'll take no longer than 2 months for you to complete and list on the market. Looks for areas with good schools. Inventory is extremely low right now, so if you find one 30% below ARV, jump on it.


I agree about safety with the lower priced market. I had considered areas like this as well - Modesto, Stockton, Bakersfield, etc. But with the market turning down right now we haven't hit bottom. These markets are the first to fall and dramatically. There could be good opportunities once it bottoms out and starts to rise again but that's likely a year+ out. Trying to find a stronger market makes sense. Maybe go in with another investor? Where I live in Walnut Creek there is still very little inventory, homes are selling close to ask and still within a few weeks. Yes, it's not as competitive because there aren't 20 offers but I put an offer on a home that needed work in December and it still got 6 strong offers.

Instead of flipping, I'm looking at buying a single family that can be converted easily into 2 homes with 1 being permitted as an ADU. I've found a couple of places where the numbers make sense. For example I had found a cosmetic fixer (owner passed in the home) for $650k in Martinez with the Pleasant Hill schools (6-7/10). I budgeted $100k to covert the 4/2 bath into a 3/2 and a 1/1 where I could get $5k per month in rent.

 

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Osazee Edebiri
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Osazee Edebiri
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Replied Jan 11 2023, 18:57

I hear the concerns of the people saying it’s a tough time to flip right now, but devils advocate a bit when is a good time to start? 

There will always be more experienced investors and people that have an advantage especially if they have been doing it longer.

 I say if you want to flip, come in the game knowing it will be difficult and put in the work to understand that it’s not as fun or as simple as an HGTV show right in the beginning. 

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Ramsin Jacob
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Ramsin Jacob
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Replied Jan 12 2023, 00:21
Quote from @Erin Colbert:
Quote from @Ramsin Jacob:

You're making a common misconception by thinking it is safe to go into a lower priced market like Modesto. With interest rates increasing, the people who are affected the most are those lower end buyers. Believe me, I have listings all throughout the Bay Area, from Oakland, to San Jose, to Redwood City, you name it. The more expensive the house, the more traffic I had. Wealthy buyers are not phased with interest rate hikes. Santa Cruz is not very expensive compared to the Bay Area. I have sold over $50m worth of fix/flips in the Bay Area. You need to just find a property with a large spread, minimal costs, since you are new in this business you need to find a house that only needs cosmetic repairs that'll take no longer than 2 months for you to complete and list on the market. Looks for areas with good schools. Inventory is extremely low right now, so if you find one 30% below ARV, jump on it.


I agree about safety with the lower priced market. I had considered areas like this as well - Modesto, Stockton, Bakersfield, etc. But with the market turning down right now we haven't hit bottom. These markets are the first to fall and dramatically. There could be good opportunities once it bottoms out and starts to rise again but that's likely a year+ out. Trying to find a stronger market makes sense. Maybe go in with another investor? Where I live in Walnut Creek there is still very little inventory, homes are selling close to ask and still within a few weeks. Yes, it's not as competitive because there aren't 20 offers but I put an offer on a home that needed work in December and it still got 6 strong offers.

Instead of flipping, I'm looking at buying a single family that can be converted easily into 2 homes with 1 being permitted as an ADU. I've found a couple of places where the numbers make sense. For example I had found a cosmetic fixer (owner passed in the home) for $650k in Martinez with the Pleasant Hill schools (6-7/10). I budgeted $100k to covert the 4/2 bath into a 3/2 and a 1/1 where I could get $5k per month in rent.

 

We've hit the bottom already in the Bay Area, I sell properties throughout the major counties, speaking from experience. Prices have already dropped dramatically by an average of 20%.  It's not going to get much lower at all.  Especially with low inventory.  We're talking one of the strongest, if not the strongest market in the country.  We still have a massive housing shortage which doesn't have a end solution coming anytime soon.  In fact, cities like San Jose are 50% behind their quota of new development to aid the housing shortage.  Yes, houses are still selling close to or above asking price.  I just sold a listing in San Jose last month above asking price when it was on market for 2 months and we actually we price increase rather than decrease.  Another listing of mine in Oakland was on market for multiple months, held firm at our price and got slightly above it still.  

Look into Berkeley.  Better market than Martinez.  Also look into Tesmecal, Mosswood and Piedmont Ave neighborhoods of Oakland.   Find a property that can be converted with SB9.   You can have up to 4 units on 1 lot as long as it meets certain requirements.  I highly recommend leveraging SB9.