Hi Guys , So im 21 and i have an ambition to get financially free in my life eventually. im really young and just want to get in the game, i have an okay knowledge on real estate investing but still have questions since i have yet to start my journey. Im currently in the marine corps and am thinking of purchasing a fix and flip off base with two other marines. The house is listed for 50,000 but sold in 2013 for 120k. the hurricane that came through in September messed alot of houses up. marines always relocate to this town from all over and its a constant cycle of marine coming in and out so selling it will be somewhat easy but the problem with this house is that it needs a lot of work , my main concern is the mold problem. it has 3 beds and 2 bath , the kitchen needs remodeling , the bathroom needs work , and just overall everything needs work BUT im thinking if its 50,000 now and i high ball the repair cost to 40,000 thats still 90,000 and i assume if it sold for 120,000 at some point it can come to 120,000 again . me and my buddies are wanting to get into this property to get started and get our hands dirty to see what this is all about .im open to opinions and criticism i just need advice really .
@Steven Leonardi Semper Fi.
A few questions. Are you located near a training base or a base that has more permanent duty station billets? If the base is primarily for initial training then there will be a lot of lower ranked personnel who may not be able to buy the house as easily as you think. They would be more likely to be renters. Since you said it is a constant flow in and out of the area this would be my concern for flipping.
Second, have you checked with lenders and found out if the house will qualify for a loan? That can be an issue when there are repairs to do. It will need to appraise high enough to get the loan.
Also, lenders can look at how long you have been in the Marines, most require two years in a field. In this case though active duty personnel can also be required to have a certain amount of time left before they get out.
These are not deal breakers, they are just things to be aware of so if they pop up you are already thinking of them and can be working on a solution.
Yep . I’m located on Camp Lejeune . I see a lot of potential for this area and I leave in August after serving four years . But I appreciate the response . I’m inexperienced so I gotta ask , if I tell a bank I’m trying to buy this house do they do a appraisal for me to see if it’s worth it ? And for repairs how do I get a person to look at the property and hire people to fix what is needed ?
@Steven Leonardi , there are a lot of open questions that you'll need to nail down prior to moving forward. The biggest 2:
- ARV: you can't use what this sold for 6 years ago as any kind of guide. Talk with with a realtor and ask them to pull recent sold comps. Be conservative, don't just pick the highest one and assume that's the ARV.
- Reno costs: $40k doesn't go as far you may think. You need to walk the property with a couple of contractors and get actual quotes. Have a scope of work pretty well defined beforehand. My assumption is that reno costs are going to run higher than you think, because contractors are in demand following the hurricane.
With all that said, if we take your numbers above a face value the most you would want to pay for this place is $44k. Following the 70% rule: ($120 ARV * .7) - $40k Reno Costs = $44k max offer.
This should net you ~$20k after fees and holding costs. Split 3 ways and after taxes, you're probably looking to walk with ~$5k per man. Not bad for a few months work and the experience will be priceless.
Evaluating your deal is the key to success. Here's how I do it:
- Get good comps on the property.
- Don't use the seller's comps.
- Make sure you consider age of the home and anything else that provides a comparable. Ex. You can't compare a house that has a garage with one that does not.
- Find a retail target (a few recent comps that you can emulate). Create a target value for the property.
- Verify the retail probabilities with a trusted retail realtor.
- Work up the scope of work with the rehab costs.
- Ask the question - what type of rehab will it take to hit the target?
- How much will it cost?
- Add in any holding costs, selling costs, taxes, anything else.
- Now, add in the return you require to make it worthwhile.
- Now you know what the property is worth to you.
- Don't pay more than what it is worth to you.
- It's always ok to walk away.
- Your success is determined by the purchase price of the distressed property.
- Do Not depend on a glamorous retail sale at the end.
- Do Not think you can "make" the rehab fit, or force it to work.