As many of you know, I knew nothing about RE a year ago. When I started my research on the subject, I stumbled upon Bigger Pockets and joined it right away and started reading all the old posts, asking you guys questions, etc.
Like many newbies, I jumped around from one thing to another (Mobile Home Parks, SFHs, Apartment Complexes, HM lending, private lending, etc!). And I did all this while living in India - I am still amazed at how BP and the internet have made it easy for anyone in the world to invest in RE in the U.S.
I finally decided to try fix-and-flips in Phoenix and flew down here and got started right away. I actually lost money (a very tiny loss) on my first two flips but learnt from each one and felt that I would eventually make a profit as I continued to learn and avoid the previous mistakes. Today I closed my third flip for a small profit. On the whole, while this business is not yet a financial success, I feel that I have learnt an incredible amount and also enjoyed the entire experience.
I now have a bunch of properties in Phoenix on the market and am keeping my fingers crossed as to their eventual profitability. It's been a blast so far and I appreciate all the advice that I have received from experienced BP members through their forum posts and also PMs. I even had the pleasure of meeting and learning from two wonderful BP members when I was in Denver.
Thanks to all of you and to Josh for making all this possible.
I have used three agents so far, two of whom I found here on BP. Both are good and honest people. I have also partnered with a BP member on my recent flips - a great guy with an excellent business mind.
Congrats Vikram to your first profits in Phoenix and here's to bigger pockets, errr profits on the others ... thanks for sharing!
That's great Vikram! Congratulations! Care to share more details about your deals?
Congratulations Vikram, not an easy accomplishment doing this remotely. I assume you have good contractors that you use for your fix and flips.
Look forward to your future success stories.
Thanks, guys. Chris, my deals are not at all impressive but I can share some of my learnings.
1. Deal 1. This was a break-even deal. I comped the property wrong and that's why I did not make money in it. My comp errors included such basics as (a) not realizing that an identical floorplan in a cul de sac is worth more than one in a regular street and (b) not discounting my property for the fact that it did not have a pool. One other error was to take the higher end of the price range as the value instead of the average. I also made the mistake of assuming that past prices (i.e. comps) would reflect future prices. In this town, prices have continued to decline each month and by the time I sold the property, it was worth less than when I had bought it.
2. Deal 2. This property backed to a main road and I did subtract some amount for that but not the right amount. But the main problem with this property was that it had an awful neighbor. He has a Harley parked in his driveway, his front yard was not well-kept and hiss backyard was a complete junkyard. I did not peer over the fence while buying my property because the neighborhood, on the whole, was very nice. But all that buyers could see from the upstairs window was this guy's backyard and I had many buyers tell me that they would have made an offer but for the yard. I finally sold it for about $10K less just because of the neighbor's backyard. I also spent about $5K more on the rehab than I should have - more expensive blinds than were required, etc. Loss $7K.
3. Deal 3. This property should have been much more profitable. But I accepted an FHA offer, the second appraisal came in way under contract price, I put it back on the market and then the tax credit expired and I ended up selling it for $10K less than the original contract price. Profit about $10K.
I hope my other properties generate better returns than these did! (Or I am going back to what I know best - stocks.)
Sounds like you have learned some fairly low cost lessons.
It sounds like you margins are thin. Are you repair estimates working out with in budget? Are you purchasing the property with sufficient room to generate a profit? I'm sure that you are finding that time is an important factor here as well. The longer it takes to rehab and sell the more the market has a chance to change.
Yes, the margins are not that great, Charles. When I first flew down here, I read all about the 70% of ARV rule and was bidding based on that. After about a 100 unsuccessful bids, I realized that this market is way too competitive and the typical price to ARV is actually around 85%. This makes the business quite hard because you have very little margin for error.
I typically buy pretty new homes so the repair estimates are working OK on my recent properties - everything except for the first couple. I typically just do carpet, paint, etc. Nothing major.
I think in this market, if you can make about 10% of your capital invested on a flip, you would be pretty successful. I am sure investors who buy properties that need a lot more repairs make more money, but I prefer the cosmetic rehhabs.
Yes, my first property was on the market for about 6 months and lost around $10,000 in value during that time. I am now trying to speed things up. My repairs take only about 10 days on average as there isn't much to do.
Originally posted by Vikram C.:
After about a 100 unsuccessful bids, I realized that this market is way too competitive
Are you buying off of the MLS?
No. Trustee sales. They are hyper-competitive here.
Learning by doing Vikram :).
Are you doing this all from India and have a team in place that you work with or are you in AZ?
Robert, I fly down every month to Phoenix, buy some properties, approve the rehab plan, and then fly back to India. I think I am spending roughly half my time here in Phoenix right now and hope to make that closer to 1/3rd or 1/4th of my time.
I do have a good team here and I also now have a business partner in Phoenix who co-invests with me on my projects. He is a BP member as well and he is able to manage the projects in my absence.
Congrats on a job well done Vikram. One of my favorite authors says "profits are better than wages" and I couldn't agree with him more.
I am waiting on my first profit check also. Hopefully it will follow soon :)
Congrats on your success. I know that once you get everything streamlined, the margins on each deal will get bigger and better.
There is no amount of reading that can make up for actual experience.
Vikram, you are learning by doing, and at the same time studying and researching. You're going to be just fine.
You picked AZ perhaps a little early, but who can call exact market bottoms? Also rehabbing from afar is challenging and probably more expensive. I assume you really trust your contractor?
Have you looked at any more apartments? Your financial analysis abilities could really be leveraged on commercial or multi-family.
Jon, my long term goal is still to get good multi-family properties. But I like the fix-and-flip business in the short run because the ROI seems a bit higher. Although 10% may not be much, if you can reuse your cash three or four times per year, you end up with a reasonable return. (And it is a lot of fun to do.)
I suspect that the trustee sale opportunity is going to last another 18 months or so and then slowly peter out. At that time, I would like to move my funds over to multi-family housing or perhaps even mobile home parks.
My contractor is pretty good but it is my business partner who really allows me to spend so much time out of the country. I also have a project manager to manage the projects as the scale is getting a bit larger now. It adds to the costs a bit but allows us to do things on a larger scale. The way I look at it, if you have Wal-Mart type margins, then you need to scale it up to make a meaningful amount of money.
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