paying all bills with first flip

6 Replies

so I have a few bills that I need to get paid off my wife suggests we work until they r paid off (i am a union carpenter and she is a rn) which could b yrs. I think we should do a fix and flip and use that money to get those bills paid off and then if its enough money use it to refinance my house and put money down so that our monthly mortgage is lower which would make living a lot more comfortable and pave a good path for me to start my real estate investing venture does anyone have any suggestions on how to start with less risk so my wife can b more comfortable or where to start I've been reading a lot online especially BP !!! And I've been looking at houses on zillow and realtor and the mls and seeing some deals that seem OK but nothing that jumps out at me.

Am I doing the right things ?

Should I be looking elsewhere ?

Should I start out by doing a marketing campaign ?

I invite all to give input

GhNks

I think it depends on what your real estate investing goals are...Paying debts is always great, but I wouldn't use all my cash to pay debts. Just pay off what is necessary and use the rest for investing and savings for rainy days. :)

Find a good wholesaler that can give you a GOOD DEAL!

Fix and flipping houses can be profitable. It can also be a loser. It is not an easy or sure task to make money in this way. Being a carpenter is helpful, but you need a bunch of additional skills. Finding a real deal, determining the resale value, doing the right fixup to return the maximum profit, pricing the house right on the sale, to name a few.

It may not be as profitable as you think, either. A rule of thumb is that if your purchase plus rehab costs are 70% of the eventual selling price (ARV), you use hard money to fund the deal, and turn it over in six months you will make a profit of, at best, 15% of ARV. For example, if you buy a house for $120K, spend $20K fixing it up, and sell it for $200K you might net $30K in the end. Before taxes. To do that deal I would recommend you have at least $30K of your own cash, even if you can get a hard money lender to fund you for $140K.

Finding a deal like that is VERY difficult in our area. Nearly impossible. I have some info about your area that tells me it might be more likely there. But its still a needle in a haystack to find deals that good. If you pay $130K for that house and spend $30K fixing it up, your maximum profit is reduced to about $20K and you will need $40K to safely do the deal.

In both examples, your maximum return depends on staying on budget with the rehab and selling it for the price you expect. Both of those are easy to say and hard to do.

Is that the sort of return you're expecting? Do you have some cash to start the ball rolling?

@Jon ho

@Jon Holdman

I do have some money saved up but not $30,000 more the savings for a rainy day type thing a little padding to make the wife and I feel comfortable in case of emergency's and the unexpected...or should I start investing passively and build wealth more slowly over time

First question is what kind of debt is it? Credit card, mortgage, car, etc. I think if it's credit card debt, you should pay that off first for 2 reasons - so you don't pay high interest rates and second to make sure you are not spending more than you make and applying the difference to credit cards.

If it is structured debt like mortgage and car payments and you are paying it on time every month with no trouble than I think that kind of debt is fine (others will disagree). My belief is if you wait till you have all your debt paid off and a big savings account you will lose valuable years of having tenants pay for your retirement through principal pay down.

Since you are a carpenter and should have some good idea on what repairs cost, I would buy a single family house at a steep discount (maybe from a wholesaler) that you can fix up and rent. Make sure that you know what a conservative rent amount would be and aim to buy a house that would be 70 times the monthly rent (roughly 1.5% rule, where 1.5% of purchase price is your monthly rent) after repairs.

This will give you a small cash flow per month ($100-200) and start the equity building. It will get you in the game and if for some reason it doesn't work out, you can sell the single family fairly easily. This is how I got my wife to be ok with it. Now we have 2 properties and looking for our 3rd. I figure in 20 years the properties will be paid and the rents will be higher so I will be in very good shape for retirement. If I wait 5 years, I lose the compounding affect that only time can do for you.

Treat your real estate as a business and save your cash flow so that you can purchase other properties and reinvest into your business. Don't plan on taking any money out of the business for the first 5 years.

Hope this helps.

Tom

An emergency fund is an outstanding thing. It can be the difference between keeping your house or losing it if you hit a problem in life. You don't want to do anything with that money. Just keep it in cash in the bank.

The key to "building wealth" (i.e., saving money) is to spend less than you make. A lot is written about paying off debt. And getting out of debt should be everyone's goal, IMHO. Someday I'll get there myself, sigh! But getting out of debt will happen all by itself it you can simply spend less than you make. As long as you have a good emergency fund (six months expenses), you can put that excess to paying down the debt. Or building up an investment fund, though most advisors would tell you to pay off the debt first then start saving.

I'm not trying to dissuade you from fix and flipping. I am trying to show you a different picture than those silly TV shows. Its a tough business and its easy to make mistakes and lose money.

Check out @J Scott's book: The Book On Flipping Houses

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Get the Ultimate Beginner's Guide

Sign up today to receive the popular eBook for free!