$70,000 profit on a flip in Orange County (SoCal)

19 Replies

Talking to numerous investors here locally I hear that it can be hard to make numbers work on a flip in Orange County in southern California because of the high prices. I guess that is true for the inexperienced investor but not so for the pros like Joe. 

Recently I've met with one of our clients @Joe Homs to interview him and discuss recent flip he was doing with his team. Joe also invests using his self-directed 401k but this was his personal deal.

He found this one on the MLS (probate sale in pretty bad shape), which should be encouraging for many - the deals are out-there, you just have to look. With the expected profit of about $70K and only couple months of work this is going to be sweet deal for them.

Would love to hear from other local investors in the area about their experience and how they make numbers work.

"The numbers are expensive in Orange County so is the profit at the end of the day" 

Joe Homs

Here is the video of the interview:

Looked at a commercial deal her locally probate sale in Santa Ana. Experienced investor closed on it and will turn a handsome profit. You have to be pretty experienced in this market and look. There are older properties in Northen OC that are just begging to be value added too.

That is outstanding to see the great deals out in OC. I have a client that we financed a duplex in Huntington Beach a few months back and he just finished his rehab. He is about to list it and I think the profit should reach 6 figures! I will keep you guys posted. 

His deal was off-market with a cracked foundation that only cost him $10,000 to fix. Cracked foundations are scary but you get a huge reduction a lot of times which can turn into massive profits down the road. 

It is a great idea to hold a portion of your real estate portfolio in a self directed IRA. However if you qualify, the solo 401K is a far more robust vehicle and much easier to own and manage real estate, or notes for that matter.

Originally posted by @Edward Synicky :

It is a great idea to hold a portion of your real estate portfolio in a self directed IRA. However if you qualify, the solo 401K is a far more robust vehicle and much easier to own and manage real estate, or notes for that matter.

I agree. It is often less expensive to invest with a Solo 401k than with the IRA LLC, so you can get a ton of additional benefits for less money.

OK, let's all just slow down a minute.

My post is not intended as a slight to Joe, in fact, I think he's very smart and has a good business plan it appears.

So please, keep the flaming to a minimum.  :)

As a matter of fact, we are currently building a team similar to this. Total in house process.

Not all investors can "in house" the whole process which is a HUGE advantage.

I agree using self directed funds IS a great vehicle, (which I am currently utilizing for our acquisitions) but before folks go running off to convert their life savings, here's a few things that caught my attention about this situation.

My post is really for the newer people to really pause for a moment before going "all in".

Flipping can bury you if you have a "pie in the sky mentality" and your only trade experience is a slew of "Flip this house" re-runs.

He's been doing it for 40 years. He's not new to the game. HUGE.

Yes, if you have 1/2 million or more in cash to put down as an all cash offer, not really hard, especially if you have the team and network behind you.

He also gets to pocket the sellers costs to some extent, otherwise at 5-6% commissions, you can kick off almost $30k in profit in selling costs. (that's almost half the anticipated profit per Joe's numbers)

So, if anyone else had done these numbers, less commissions, sounds like 8% profit.

Cost: 470k - sales price of 540k, (assumed) less 5% commissions = 540k-27k = $513,000.

513k - 470k = 43k.   43k / 513k = 8.38% (gross).

$43,000.00 sounds like a chunk of money, which it is. But against his 470k up front, less holding costs for 6 months? (assumption he gets it rehabbed and sold within 6 months)

Well, then the numbers are just OK.

$43k / 6 months = 7.16k per month profit on 470k or 1.48% per month against your money.

Uh,....I get more than that in my self directed trading account.

So let's be honest for the newer folks, yes, there are some deals out there, even ones that don't know they are deals yet. I was told long ago that deals are made, not found.

Not trying to be super negative here, but the whole story was simply not told  in the video and I hate to see folks get just pummeled by false assumptions and gimmicks.

I have been involved with flipping since way before it was trendy and on TV.

It troubles me that the process is presented like anyone can just buy a hammer and make millions. Nope, not the case.

I can assure you the building codes here in California, (assuming work is done with a permit, which most is not) especially Title 24 and seismic / structural requirements, (currently the toughest in the nation) will make your eyes bug out.

If you are not familiar with them, they can eat your lunch.

I hope new folks really stay motivated if getting involved in flipping homes anywhere really.

But pay attention,....you can get creamed. Have an exit strategy.

Slow and steady wins the race.

I praise Joe for his many years of success and for sharing his story.

But alas, the video is very much like any other flip this house show.

All the numbers are simply not shown, kinda like the unemployment data, but that's a topic for another forum.  :)

BP has many great offerings of which, I am thankful are available.

And in case anyone is wondering: yes, I was born here in So Cal, AND I've been in the trades for over 30 years and have experience with RE deals.

Respect

:)


Originally posted by @Jo-Ann Lapin:

Looked at a commercial deal her locally probate sale in Santa Ana. Experienced investor closed on it and will turn a handsome profit. You have to be pretty experienced in this market and look. There are older properties in Northen OC that are just begging to be value added too.

 HI Joann,

I'd like to see some of these.

I am liquid, (to a point), and have everything needed.

Feel free to PM me.

@Steve Short

I appreciate your comments, but I think you might have misunderstood the intention of this post. The intention of this post was NOT to encourage newbies go and invest their life savings into flips in Orange County. This is not for everyone. I personally would not do it (because I don't have the experience, the time and the required skills to pull off flipping project like this). I agree with you that it would probably be foolish for inexperienced investor out-there to take on a project like this by himself.

There are many resources here on BP for investors to learn from. I intentionally posted this in the "Real Estate Success Stories" topic not as an educational piece but to share the success story. 

But your input is valuable for some inexperienced newbie with "get rich quick" mentality reading this and hopefully will cool them off to a reality that it takes years of experience to be successful in this market with such project.

@Steve Short

I do not take offense to your opinion, because everyone has one. It would have been nice if you had reached out with any questions that I could clarify, but I will do that now.

OK, let's all just slow down a minute.

My post is not intended as a slight to Joe, in fact, I think he's very smart and has a good business plan it appears.

You should have followed your own advice above.

So please, keep the flaming to a minimum. :)

I think you were expecting a response with a statement like above.

As a matter of fact, we are currently building a team similar to this. Total in house process.

Not all investors can "in house" the whole process which is a HUGE advantage.

I miss your point above.I never said that all investors could “in house” their process? Also, is that what you are trying to do now?

I agree using self-directed funds IS a great vehicle, (which I am currently utilizing for our acquisitions) but before folks go running off to convert their life savings, here's a few things that caught my attention about this situation.

I would strongly suggest that you read up on the rules for self-directed accounts. I am currently NOT flipping with this money and it was used to purchase some “buy and holds” over 9 years ago when the market bubble burst. I legally CANNOT use these funds on my ‘in house’ projects. That is one of the rules. Contact @Dmitriy Fomichenko so that he can educate you.

My post is really for the newer people to really pause for a moment before going "all in".

Flipping can bury you if you have a "pie in the sky mentality" and your only trade experience is a slew of "Flip this house" re-runs.

He's been doing it for 40 years. He's not new to the game. HUGE.

Yes, if you have 1/2 million or more in cash to put down as an all cash offer, not really hard, especially if you have the team and network behind you.

OK now really? One minute you say that it’s hard to flip and when I do it’s NOT?Do you think that the team and network just formed on their own?For your information I had not flipped in quite some time before 1-1/2 years ago when my son-in-law @Ryan Mitchell and daughter expressed an interest in doing so. I told them that I would only teach them the business from the ground up so that is why I do what I do now.

He also gets to pocket the sellers’ costs to some extent, otherwise at 5-6% commissions; you can kick off almost $30k in profit in selling costs. (that's almost half the anticipated profit per Joe's numbers)

What you fail to add into the equation here is my cut of the commissions on the purchase of the home.In the below case it was $11,700. I pay only 2.5% + my broker’s commission to sell the home. What you also don’t understand is that I am an “investors” Realtor. I would with flippers buying at the court house steps and list their properties for way below the market rate because they provide me with volume.

So, if anyone else had done these numbers, less commissions, sounds like 8% profit.

Let’s stop here before we go into the numbers.Is 8% bad for you? That is actually the average for flippers in Orange County.If I flip 4 times a year with the same money does that add up to a 32% return?

Cost: 470k - sales price of 540k, (assumed) less 5% commissions = 540k-27k = $513,000.

513k - 470k = 43k. 43k / 513k = 8.38% (gross).

$43,000.00 sounds like a chunk of money, which it is. But against his 470k up front, less holding costs for 6 months? (assumption he gets it rehabbed and sold within 6 months)

Well, then the numbers are just OK.

$43k / 6 months = 7.16k per month profit on 470k or 1.48% per month against your money.

Here were the final numbers to keep everyone honest.

Cost: $415K – Sale price of $535K, (I don’t usually account for the front end commissions, but they were $11,700 and my back end was ($10,700 + a small broker fee) = $535k-commissions (let’s call it a wash) = $535,000

$535k - $415k = $120k, rehab was $55K so profit was $65k. $65k/$535k = 8.23% (gross) your calculation about should have been 11.93% so I wish you were correct and did not add it wrong.

The total turn time was around 4 months.You rely a lot on incorrect “assumptions” and numbers. I would encourage you to wet your feet in the deep end of the pool again. The water is just fine if you know what you are doing.

Uh,....I get more than that in my self directed trading account.

If the above is correct then I encourage you to continue with what is successful to you.

So let's be honest for the newer folks, yes, there are some deals out there, even ones that don't know they are deals yet. I was told long ago that deals are made, not found.

Not trying to be super negative here, but the whole story was simply not told in the video and I hate to see folks get just pummeled by false assumptions and gimmicks.

The video made NO claims, other than my own success. There was NOTHING that I said that was false or a gimmick. The video was used as a promotional tool for self-directed 401K accounts which I use and recommend.

I have been involved with flipping since way before it was trendy and on TV.

It troubles me that the process is presented like anyone can just buy a hammer and make millions. Nope, not the case.

Wow, are you projecting your failures above? I have NO idea how many flips you have done and I never said it was as easy as picking up a hammer. However, it is a teachable skill.

I can assure you the building codes here in California, (assuming work is done with a permit, which most is not) especially Title 24 and seismic / structural requirements, (currently the toughest in the nation) will make your eyes bug out.

If you are not familiar with them, they can eat your lunch.

I hope new folks really stay motivated if getting involved in flipping homes anywhere really.

But pay attention,....you can get creamed. Have an exit strategy.

Slow and steady wins the race.

Have you always been so negative? You have no idea who I am or what I have accomplished over the last 40 years. I agree that flipping is NOT for everyone, but it is a teachable skill.I have reached out to over 40 bigger pockets members in the last year, mostly newbies to tell them about how to invest correctly. To warn them about the flip shows and “professional flippers” who only really want their money for some program or book they are selling. I do all this for the price of a cup of coffee at Starbucks. I encourage people to reach for their “goals” and not their “dreams.”

I praise Joe for his many years of success and for sharing his story.

But alas, the video is very much like any other flip this house show.

All the numbers are simply not shown, kinda like the unemployment data, but that's a topic for another forum. :)

BP has many great offerings of which, I am thankful are available.

Thanks for the praise, but then in the next sentence you go negative again? Everyone has the numbers to look at now and know that I am always available for questions.

For everyone and anyone who would like to pick my brain, the cost is one cup of coffee.  Reach out...

Hey Joe, and anyone else who felt offended in anyway

apologies if my post was taken out of context.

I made no assumptions that I am aware of.

In fact, I believe I praised your efforts.

the video was about your current project.

the following posts led in another direction.

I don't have any questions for you, as your process seems tight as a drum to me.

Steve

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