Found a home to flip to retail. I have some questions

7 Replies

So, I found a home on craigslist that was on sale for $157K (Built in 1991). One other home sold last october for $215K. It's a small subdivision and the last sale before the one in October was for $230K. I think I can safely assume I will get $200K. Title will be clear (they say because HUD clears the title when they sell it), no major damage to the property at all. Needs painting and cleaning, maybe finish some of the upgrades that didn't pan out.

The sellers are wholeselling the property because they have two other properties that are taking up all their time. They purchased the home at a HUD auction last month, and it was foreclosed on last year. They are still profiting through the wholesale, but

- Why didn't the home sell in that year?  Seems like it should have sold before it got to auction?  

@James Phillips  That is a bit of a tight flip.  Are you certain it will go for $200K or speculating it will?  Make sure you have enough data to back up your judgment.  

I just bought a HUD home that sat on the market for months. I bought it for $60.5K put about $5K into it and am selling it for $85K (under contract to sell). Why did this one sit for months? I think, besides the fact that it was winterized and needed some cosmetics, it was because it started out too high, got stale, came down by increments, low bids were rejected, people forgot about it, and then they took my low bid.

@Larry T.:

I think I'm being conservative with my estimates honestly.  The home cady-corner to me sold for $215K in October, homes in the neighborhood next to mine are selling for above $200K, although those are newer.  The house two doors down from me sold for $230 in 2011. 

It will be a cash purchase, so no closing costs (fortunately).  I believe the money that would normally go to closing costs can be used for a new feature, or just used for profit?

That means a house that -- with just some paint and cleaning -- is worth $215K sold for $150K (or less) at auction?

While it's possible, if there are any other serious investors in your area, it's unlikely. More likely, either your ARV or your rehab estimates are off.

I'd verify the ARV with a good, local real estate agent and verify the rehab costs by having an inspection and getting bids.

@James Phillips  

I would personally take a minute and examine things closer before jumping in :

-First off, I do not get a title policy in most circumstances when I purchase a HUD. However, if they have purchased the house already or even in a double close situation, You have no idea whether the individual or LLC has any judgments or liens against them. Get a title policy !

-An investor is too busy to paint and clean a house to get that kind of return ? Doesn't seem logical to me

Just make sure the numbers are correct and you close with a title policy if they are.  Good luck ! 

Thanks @Greg Hall and @J Scott!

I think the Sale Price is most likely $200 after talking to an agent, (I'll be talking to a few others tomorrow), $190 worst case and $215 as a best case.  For this I'll assume worst case:
ARV - $190K

(No closing costs for buying- cash deal)

Purchase - $157K

That leaves $33K

Floor repairs - $5K

HVAC repairs (if needed, its old but I don't know if it works) - $4K

Various replacements (window seal, replace thermostat, one or two panels of vinyl siding) - $2K

Remaining $22K

Sales Agent Fee (6% at $190K) $11,400

CLosing costs selling - $5K

Profit remaining: $5,600

I have a friend that has flipped a few homes and he says there doesn't appear to be any unforseeable problems - it seems like we should be able to paint, clean up and do the rest within one month.  However, that's not a lot of profit for the effort, assuming there's nothing else that will go wrong.  

I need to get more quotes and be more specific, but now its making more sense as to why they aren't so high on this one.  

I feel like if its easy enough and there's no problems, then $10K would be a good return.  This may not be good enough margins for me

Even if you are being conservative, you don't want to pay $157K for a property that you calculate a profit of $5K on.

Margins would be far too tight for me and there are so many factures that will eat that $5k spread before you know it. For instance, if you are able to find a buyer for the 190k and they need 3%-6% seller's assist, your profit is gone. Not to mention requested repairs after home inspection.

It would seem to me that investors that are selling are trying to dump their worst property. I agree that if this was a good deal, they would just keep it.

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