Hello everyone! This weekend i just got my first flip under contract to buy. I have came up with at least a dozen exit strategies, the last one being wholesaling. I got it under contract at 27k and the ARV is 125k. Home is in rough shape! For sure will need 50-60k worth of work. I am thinking more long term here, my first method would be to BRRRR the deal. Thing is, the property is roughly 45 minutes away from my personal residence. My question to everyone is, I know for a fact the home will need to be completely remodeled. How do you choose weather to do the work yourselves or leverage out the work and losing on profits. I am a full time Real Estate Agent here in Houston, having to do all the work myself I believe wouldn't be the best use of my time. The great thing about is that its a smaller home, only 960 Sq Ft 3bed 1bath.
I figured once im a few properties in, I can begin to leverage everything out (property management, rehab, etc) but for now I am leaning towards handling everything myself.
When you say "completely remodeled" does that mean the whole house needs paint inside and out and updating the kitchen and bath? Or does that mean the house was flooded during Harvey and hasn't been fixed and needs new drywall and insulation and...
The property was bought from the Tax Auction 2 years ago. I have it under contract with the people who bought it from the auction. The previous owners had to be evicted and they tore the place up. I believe the entire house needs to be ripped apart and re done. Needs windows, siding, has a metal roof that seems solid, needs foundation work. As for the interior, needs flooring, sheetrock almost all around the house, bathroom and kitchen need to be redone along with other details. Home was not flooded in Harvey per the seller
Hi Michael, congrats on the deal. I think the first step in deciding whether or not to do all the work yourself is to ask yourself if you have all the skills needed to do the full remodeling. Putting in your own sweat and effort into your property is a great way to increase profit, but can also take a while and extend the amount of time until you see a return on your investment. Since you said your intention is to flip rather than hold it as a rental property, you do have less of a time restraint because with rentals, time spent renovating is time that you're also not getting rent checks. Analyze what your strengths are and what you'd be able to do well and efficiently and also figure out what aspects of the renovation you won't be able to do. If it's your first time doing one of these projects, you may want to hire professionals for certain aspects of the job that could have you fail an inspection, hypothetically. I'm relatively handy so I took it upon myself to do the majority of the renovations at a multi-family I'm working on. However, I know that I'm not good at cutting or laying tile so I hired others to do that part for me. I have some friends that can't put a hammer to a nail and know that going into their deals so they account for increased construction costs, and I have other friends that could practically do a full gut renovation single handedly. I fall somewhere in between where I can do some aspects of the job and not others. In my opinion, when it comes to deciding how much of the work you want to do yourself, it comes down to knowing yourself and being realistic with what you can and cant do and weighing where your time is most valuably spent. I hope that helps a bit, and good luck with your project!
@Michael Carbajal if you were to do the work yourself, how confident are you that the house would be able to sell upon completion?
Re BRRR - one thing to keep in mind with BRRR is that you have to qualify for the refinance part which is pretty tricky.
What I know about you: you are buying your first deal and you are a real estate agent. My mind quickly jumps to the chance that you are new to both. If you are new as an agent, do you have the tax returns and income that a bank will want to see for the refinance portion?
I'm knocking out my first two flips now and briefly thought of holding my first flip. But then I looked into the rates and terms for the refinance portion and quickly found that it wasn't worth it.
Me personally - I view this as a win if you can be all in around $80k-$90k and sell this yourself as the agent.
But realistically, there will be some unforeseen costs. So let's say the rehab and holding costs are $75k. You're all in at $102k. If you sell the property yourself, then you can make about $20k profit. The experience alone will be worth far more than the $20k.
As for the BRRR..
You'll need to be all-in around $87k-$94k to get all of your money out. That will be very difficult. And you'll need to put some cash into the closing costs too, have reserves, and be confident that your DSCR is about 1.2
The good news:
Good job on getting out there and taking action.
The bad news:
This does not seem like a good idea and I think your rehab budget is too low and if the the ARV is only 125 I don't think you're going to make any money on this deal.. You gonna have all this stress, time and money output and at the end of the day you MIGHT make 10 grand when you sell it...then you got taxes... And then if you factor in your hourly rate during this entire time for this project you are going to be negative..
@Michael Carbajal if one of your dozen strategies is owner finance as-is I'd go that route.
Managing this rehab will give you gray hair! Trust me!
Don't do the work yourself. If you don't have the funds to renovate, then you need to start shopping it around to see if you can sell it 'as is'.
I’ll PM you, @Michael Carbajal