Made 17k On My Second Flip, After Lots of Bad Luck

29 Replies

1724 sf

4 bed, 2 bath

1 Story

No Garage

Listed Price $66k

Offer/Purchase Price $70k

Original Estimated Renovation Cost $31k

Final Renovation Cost $36k

ARV $140,000

Sold $143,000

Closing Costs at Purchase $4,600 (including $1500 that I pay my agent to handle Auction transactions)

Closing Costs at Sale $10,200 (including 6% commission)

Holding Costs (Loan Payment) $280 a month for 4 months

Holding Costs (Utilities) $200 a month for 4 months

Holding Costs (Yard Maintenance) $0

Real Estate Commission Paid at Sale $6,600

Note: I pay my agent an extra $500 on top of his commission to make it more worth his time. I also pay him $1500 for handling auctions. For what I pay him, he will show me lots of houses, meet with contractors to get bids and even check on the progress of repairs in a pinch. The way I see it, if I was a normal home buyer, I might look at 5 or 6 houses before settling on one. As a flipper, I may look at 20 or 30 before I can get 1 under contract. And considering everything else he does for me, it is worth it for me to pay him the extra bonus. I should also note that I do have my real estate license, but I honestly don't have the time to use it, but man, I would save a lot of money if I did :D 

Target Profit Margin $18,000

Actual Profit Margin $17,500

Financing used: 80% of home and renovations covered by bank with an interest only construction loan. The rest was funded with credit lines and cash from first flip

Condition of Home: 

Crack house

Lots of trash to be removed

Piss and crap all over the floors. 

Non-permitted sun room done incorrectly. Built on top of existing back porch.

Exposed wiring in the attic that lead to non GFI outlets in the soffit.

Outside had not been painted in over 15 years

What was done: 

Trash-out and Demo

Tear down Sun room and repaired porch

Properly repaired electrical in attic

Painted inside and outside of house.

Painted roof (yes, you can do that)

Replaced floors with new laminate and carpet throughout the house

Replaced old almond color switches, outlets and covers with new white ones

New lights and fans throughout the house

Completely redone bathrooms with new tile, vanities, mirrors, lights. Managed to safe the shower and tub in each bathroom.

Knocked down walls between kitchen and living room/dining room area. Closed of existing entrance from the foyer to give the kitchen more cabinet and counter space.

Replaced old cabinets with new unfinished oak cabinets and then painted them. Used formica for the counters.

Fence added to roughly 80% of the back yard.

General landscaping

Before and After Pictures: Some of the before pictures are actually during the renovation phase.

https://drive.google.com/open?id=1Zof64ecPRvOJy79HGXwWyVO7WDFjNGBz

Details

The reason why I laid out all those prices is because I read a lot of success stories before I started and often times there was very little information about how much money was spent where and why. I am hoping that even though prices will vary greatly from area to area, this might help put give some perspective on what goes into flipping a house.

After I sold my first house, It took almost a year before I was able to get another house to flip. During that year, I was bidding on houses every week and every week, all my offers were rejected. When bidding on these houses, I was shooting for a 20k profit, which just wasn't happening. It wasn't that 20k was unheard of, in fact, it was not uncommon. However, in 2017 there was a huge influx of new house flippers (mostly inexperienced), so getting a house at a price that would allow a really good profit was very difficult. Granted, if I had more time, I could have explored other options for acquiring houses, but it was a rough year for my other business and my time was tied up. The best I could do was bid on every MLS foreclosure and auction that seemed like a decent flip. Half way through the year, I went over all the numbers for the houses we bid on. For those that closed, I looked up what they eventually sold for. I did the math for each of those deals with the estimated renovation costs and found that had I purchased those houses for the same price they sold for, I would have only made 15k on average. So I started to shoot for 15k to 18k profit (depending on the scope of work and potential risk) on the next several and finally got one. This house was an auction house that was in the upset period. I put in my 5% upset bid and for some reason, no one upset my bid after that.

Well, at this point, you would think that we closed on the house, renovated it, sold it for a nice profit and lived happily ever after right? Nope . . . During the due diligence period, we found out that the house appraised for 15k less than what our comps showed us. On top of that, the tip of the house (part of the back yard) was in a flood zone. Now, I was not so much worried about the flood zone, but it certainly didn't help my confidence in purchasing the house. My real estate agent assured me that the comps looked good and that there was even a couple other houses that was pending and would support the ARV even more, by the time we closed. So I called the appraiser and personally spoke with him. I made sure he was accounting the renovations and he assured me that was and that his appraisal was accurate. He explained that the reason why the appraisal wasn't coming out the same as the CMA, is because the one of the comps was a private sale. Assuming that the appraiser knows best, I backed out of the deal and lost my 5% deposit. I later learned that (at least in my area) it doesn't matter if the house was a private sale. I was told by another appraiser that a lot of appraisers simply do not want to do the extra leg work that is required to find out the circumstances behind the sale and determine if it works as a good comp. I should note that the attorney's office told me that there was a possibility that I could get my money back IF the house sold again at auction for the same price that I bid it at or better. I was also pretty much told that they were under no obligation to do so and that it was up to the attorney.

From there, I went back to the grind and kept bidding on houses and got nothing, again. After a few months, this house that I let go of went back to auction. I had my real estate agent run the comps again, and sure enough the numbers came out the same again and those houses that were pending had sold and supported the comps even more. I purchased the house from auction again for roughly the same price and eventually got my deposit back from the original auction. Now, we have our happily ever after right? . . . well, sorta. 

There was a lot that went wrong with this house, but honestly, nothing that I would really consider major. I certainly didn't lose any money. But the renovations took way too long and the renovations cost more than estimated due to unforeseen circumstances. The two main things that blew our budget out of the water was the AC unit and the fence. Let me explain.

AC Unit: We already knew the unit had to be repaired, but by the time we acquired the house, the unit had actually be stolen. Luckily, we found a used unit in good condition and we could have it purchased and installed for $800. This was actually cheaper than what we estimated it would cost to repair the existing unit. So, with the extra room in the budget, we completely opened up the walls from the kitchen to the dining room/living room area, closed off the existing entrance from the foyer, spent more money on cabinets and counters (because now we had the room to do so) and made a beautiful U shaped kitchen. Shortly after that, I realized that the AC unit still had not been installed . . . come to find out, the used unit was sold before we could get to it and the contractor had been looking for a replacement since. For the next two months we kept looking and eventually found one and could have it installed for $1600, which wasn't bad, but we already spent more money than anticipated on the kitchen. Which, honestly, I am glad we did either way. Just so you know, I didn't hold up the renovations to save a few bucks on the AC unit, it just happen that the renovations was taking that long anyways.

The Fence: This was the big one. The back yard was huge and unkept. The grass was long and the shrubs and trees had grown into many parts of the chain link fence. Originally, we had planned on cleaning up the fence and repairing it where needed. After we cleaned up the back yard and started cleaning up the fence, it became clear that fixing this fence was not an option. So, I decided that we would just get rid of it. Well, once it was removed, we could now see the flood zone . . . On the left, behind the neighbors yard, there was a swamp that was waist deep. Which, would explain why their backyard was only half the size as ours. In the very back portion of the yard, there was more water that drained from part of the neighborhood into our back yard. Basically, about 60 feet (depth) of the back yard was worthless. So, we did the only thing we could do and put up a privacy fence around the good portion of the back yard. We did this for two reasons. 1. Obviously, this was an eye sore. We weren't trying to hide anything though. It was public knowledge that this house was in a flood zone and we even had a gate on the back of the fence for easy access, so the potential home owners could inspect the area and maintain it. We also included a quote for flood insurance with the disclosing documents. 2. My main concern was that since this was a 4 bedroom house, more than likely a family was going to be purchasing it. I know I personally wouldn't want my kids to have easy access to the swamp area and I am sure that most parents would agree. Anyways, we lost a huge chunk of the back yard and we spent $3800 that we never planned on spending, but at least the backyard was still a good size and now safe for a family with kids.

Finally, we got it on the market. We had listed the house for $149,900. We knew for a fact that it wouldn't appraise for that amount and that we probably wouldn't be able to sell it for that much either, but we wanted to see if we could break the comps anyways. Within 1 week, we had multiple offers on the house.

Offer 1: 146k

Offer 2: Full Price

Offer 3: Full Price

Offer 4: Full Price

When we received offer 1, we waited a few days for more offers to come in. It became clear to the buyers that we weren't that interested and they decided to move on. Offers 2, 3 and 4 came in within a day of each other. At this point, it was a matter of figuring out how we could take advantage of the situation. It's not like we could ask for more money. We knew it wouldn't appraise for the amount we were asking for to begin with and in this market, people don't save up money for houses since 99% of buyers here get 0% down mortgages through the VA. But, there was one thing I could do and that was to negotiate the closing costs. In my area, sellers pay for all closing costs, to include the buyers closing costs (unless of course you are the bank selling a foreclosure). In fact, this is such a common practice, that a lot of agents in my area will swear you can't negotiate this and that no matter what, the seller will end up paying for the buyers closing costs. So, I did what any good business person would do and did it anyways. We told each of the buyers that we had multiple full price offers and that the only way they cold sweeten the pie was to lower the closing cost that we would have to pay. Two of the buyers came back with 2k less in closing costs, while the other offered 152k with no reduction in closing costs. It became apparent to me that the buyer who offered 152k was either an idiot or thought I was idiot. Either they couldn't follow the instructions or they knew that the house wouldn't appraise for that much and was counting on the appraisal to prove that point so that they could renegotiate the contract. Either way, we rejected that offer and concentrated on the other two. So, now we had to narrow it down again. We looked at the lenders and realized that one of the lenders the buyers were using has a tendency to push back closing 2 to 3 times on average, while the other lender does the underwriting up front and only commits to a closing date they feel they can actually reach. So, we contacted the buyer with the more favorable lender and asked them to again lower the closing costs and they knocked off another $500 and we were under contract. By the way, the more favorable lender was able to close almost a week earlier than anticipated.

Everything went pretty smoothly from there. The appraisal came back at 143k, which was kinda disappointing since I thought we would at least get 145k. A lot of appraisers will try and make the numbers work, if they are not too far of a stretch and we were hoping that would work in our favor. And it did, just not quite as much as we had hoped. But, the appraiser did try. They even went a bit further out to find comparable houses, which is the only reason why we got what we did. Anyways, I wanted to make up for that 2k that I was hoping to make on top of my profits, so, I asked the buyer to pay for the rest of their closing costs (which amounted to 2k) since they were paying way less for the house anyways. Well, some how, the lender made it work and included the closing costs into the purchase of the home and we made up the difference. 

What I learned: 

First, I learned that not all appraisers are equal. I have since dealt with this appraiser a couple other times and his numbers are always way lower than ours. Maybe he has a hard time envisioning what the house will look like after renovations, who knows. Either way, I take his appraisals with a grain of salt. My only concern of course, is that he will one day be the appraiser used by the lender when I go to sell a house. Hopefully, he will have a better outlook on those properties when they are fully renovated, but we can only hope.

Secondly, maybe breaking the comps by 10k in my area for the price range of houses I am working with a is a bit too much. Perhaps if I had listed the house at 145k, the appraiser would have had an easier time justifying that number and may have even found room to support it. Instead, we got 143k. Then again, maybe it wouldn't have changed anything, but it is something to consider in the future.

Third, don't under estimate due diligence repairs cost and container costs. 

Something else I recently learned is that banks and lenders are more willing work with me on loans and additional credit lines now that the business has been open almost 2 years now. The funny thing is, in that time, I have only flipped 2 houses and the second flip sold in 2018, so it's not even considered during the underwriting process. And after all expenses, I only profited about 20k for 2017, which does not seem like much to go off (especially being that it was just 1 flip) for underwriting. Of course, my other income and credit does help.

Where I am now: Right now, I just finished up a rehab on 1 house, half way through the rehab on another house, closing on a house today and under contract for another house that will close in about a month. Profits will vary from 12k to 20k. I now have 3 lenders willing to fund my flips and decent sized credit lines to cover other expenses. I project that if things go smoothly, we should profit over 100k this year from these flips. 

Originally posted by @Dean I. :

1724 sf

4 bed, 2 bath

1 Story

No Garage

Listed Price $66k

Offer/Purchase Price $70k

Original Estimated Renovation Cost $31k

Final Renovation Cost $36k

ARV $140,000

Sold $143,000

Closing Costs at Purchase $4,600 (including $1500 that I pay my agent to handle Auction transactions)

Closing Costs at Sale $10,200 (including 6% commission)

Holding Costs (Loan Payment) $280 a month for 4 months

Holding Costs (Utilities) $200 a month for 4 months

Holding Costs (Yard Maintenance) $0

Real Estate Commission Paid at Sale $6,600

Note: I pay my agent an extra $500 on top of his commission to make it more worth his time. I also pay him $1500 for handling auctions. For what I pay him, he will show me lots of houses, meet with contractors to get bids and even check on the progress of repairs in a pinch. The way I see it, if I was a normal home buyer, I might look at 5 or 6 houses before settling on one. As a flipper, I may look at 20 or 30 before I can get 1 under contract. And considering everything else he does for me, it is worth it for me to pay him the extra bonus. I should also note that I do have my real estate license, but I honestly don't have the time to use it, but man, I would save a lot of money if I did :D 

Target Profit Margin $18,000

Actual Profit Margin $17,500

Financing used: 80% of home and renovations covered by bank with an interest only construction loan. The rest was funded with credit lines and cash from first flip

Condition of Home: 

Crack house

Lots of trash to be removed

Piss and crap all over the floors. 

Non-permitted sun room done incorrectly. Built on top of existing back porch.

Exposed wiring in the attic that lead to non GFI outlets in the soffit.

Outside had not been painted in over 15 years

What was done: 

Trash-out and Demo

Tear down Sun room and repaired porch

Properly repaired electrical in attic

Painted inside and outside of house.

Painted roof (yes, you can do that)

Replaced floors with new laminate and carpet throughout the house

Replaced old almond color switches, outlets and covers with new white ones

New lights and fans throughout the house

Completely redone bathrooms with new tile, vanities, mirrors, lights. Managed to safe the shower and tub in each bathroom.

Knocked down walls between kitchen and living room/dining room area. Closed of existing entrance from the foyer to give the kitchen more cabinet and counter space.

Replaced old cabinets with new unfinished oak cabinets and then painted them. Used formica for the counters.

Fence added to roughly 80% of the back yard.

General landscaping

Before and After Pictures: Some of the before pictures are actually during the renovation phase.

https://drive.google.com/open?id=1Zof64ecPRvOJy79H...

Details

The reason why I laid out all those prices is because I read a lot of success stories before I started and often times there was very little information about how much money was spent where and why. I am hoping that even though prices will vary greatly from area to area, this might help put give some perspective on what goes into flipping a house.

After I sold my first house, It took almost a year before I was able to get another house to flip. During that year, I was bidding on houses every week and every week, all my offers were rejected. When bidding on these houses, I was shooting for a 20k profit, which just wasn't happening. It wasn't that 20k was unheard of, in fact, it was not uncommon. However, in 2017 there was a huge influx of new house flippers (mostly inexperienced), so getting a house at a price that would allow a really good profit was very difficult. Granted, if I had more time, I could have explored other options for acquiring houses, but it was a rough year for my other business and my time was tied up. The best I could do was bid on every MLS foreclosure and auction that seemed like a decent flip. Half way through the year, I went over all the numbers for the houses we bid on. For those that closed, I looked up what they eventually sold for. I did the math for each of those deals with the estimated renovation costs and found that had I purchased those houses for the same price they sold for, I would have only made 15k on average. So I started to shoot for 15k to 18k profit (depending on the scope of work and potential risk) on the next several and finally got one. This house was an auction house that was in the upset period. I put in my 5% upset bid and for some reason, no one upset my bid after that.

Well, at this point, you would think that we closed on the house, renovated it, sold it for a nice profit and lived happily ever after right? Nope . . . During the due diligence period, we found out that the house appraised for 15k less than what our comps showed us. On top of that, the tip of the house (part of the back yard) was in a flood zone. Now, I was not so much worried about the flood zone, but it certainly didn't help my confidence in purchasing the house. My real estate agent assured me that the comps looked good and that there was even a couple other houses that was pending and would support the ARV even more, by the time we closed. So I called the appraiser and personally spoke with him. I made sure he was accounting the renovations and he assured me that was and that his appraisal was accurate. He explained that the reason why the appraisal wasn't coming out the same as the CMA, is because the one of the comps was a private sale. Assuming that the appraiser knows best, I backed out of the deal and lost my 5% deposit. I later learned that (at least in my area) it doesn't matter if the house was a private sale. I was told by another appraiser that a lot of appraisers simply do not want to do the extra leg work that is required to find out the circumstances behind the sale and determine if it works as a good comp. I should note that the attorney's office told me that there was a possibility that I could get my money back IF the house sold again at auction for the same price that I bid it at or better. I was also pretty much told that they were under no obligation to do so and that it was up to the attorney.

From there, I went back to the grind and kept bidding on houses and got nothing, again. After a few months, this house that I let go of went back to auction. I had my real estate agent run the comps again, and sure enough the numbers came out the same again and those houses that were pending had sold and supported the comps even more. I purchased the house from auction again for roughly the same price and eventually got my deposit back from the original auction. Now, we have our happily ever after right? . . . well, sorta. 

There was a lot that went wrong with this house, but honestly, nothing that I would really consider major. I certainly didn't lose any money. But the renovations took way too long and the renovations cost more than estimated due to unforeseen circumstances. The two main things that blew our budget out of the water was the AC unit and the fence. Let me explain.

AC Unit: We already knew the unit had to be repaired, but by the time we acquired the house, the unit had actually be stolen. Luckily, we found a used unit in good condition and we could have it purchased and installed for $800. This was actually cheaper than what we estimated it would cost to repair the existing unit. So, with the extra room in the budget, we completely opened up the walls from the kitchen to the dining room/living room area, closed off the existing entrance from the foyer, spent more money on cabinets and counters (because now we had the room to do so) and made a beautiful U shaped kitchen. Shortly after that, I realized that the AC unit still had not been installed . . . come to find out, the used unit was sold before we could get to it and the contractor had been looking for a replacement since. For the next two months we kept looking and eventually found one and could have it installed for $1600, which wasn't bad, but we already spent more money than anticipated on the kitchen. Which, honestly, I am glad we did either way. Just so you know, I didn't hold up the renovations to save a few bucks on the AC unit, it just happen that the renovations was taking that long anyways.

The Fence: This was the big one. The back yard was huge and unkept. The grass was long and the shrubs and trees had grown into many parts of the chain link fence. Originally, we had planned on cleaning up the fence and repairing it where needed. After we cleaned up the back yard and started cleaning up the fence, it became clear that fixing this fence was not an option. So, I decided that we would just get rid of it. Well, once it was removed, we could now see the flood zone . . . On the left, behind the neighbors yard, there was a swamp that was waist deep. Which, would explain why their backyard was only half the size as ours. In the very back portion of the yard, there was more water that drained from part of the neighborhood into our back yard. Basically, about 60 feet (depth) of the back yard was worthless. So, we did the only thing we could do and put up a privacy fence around the good portion of the back yard. We did this for two reasons. 1. Obviously, this was an eye sore. We weren't trying to hide anything though. It was public knowledge that this house was in a flood zone and we even had a gate on the back of the fence for easy access, so the potential home owners could inspect the area and maintain it. We also included a quote for flood insurance with the disclosing documents. 2. My main concern was that since this was a 4 bedroom house, more than likely a family was going to be purchasing it. I know I personally wouldn't want my kids to have easy access to the swamp area and I am sure that most parents would agree. Anyways, we lost a huge chunk of the back yard and we spent $3800 that we never planned on spending, but at least the backyard was still a good size and now safe for a family with kids.

Finally, we got it on the market. We had listed the house for $149,900. We knew for a fact that it wouldn't appraise for that amount and that we probably wouldn't be able to sell it for that much either, but we wanted to see if we could break the comps anyways. Within 1 week, we had multiple offers on the house.

Offer 1: 146k

Offer 2: Full Price

Offer 3: Full Price

Offer 4: Full Price

When we received offer 1, we waited a few days for more offers to come in. It became clear to the buyers that we weren't that interested and they decided to move on. Offers 2, 3 and 4 came in within a day of each other. At this point, it was a matter of figuring out how we could take advantage of the situation. It's not like we could ask for more money. We knew it wouldn't appraise for the amount we were asking for to begin with and in this market, people don't save up money for houses since 99% of buyers here get 0% down mortgages through the VA. But, there was one thing I could do and that was to negotiate the closing costs. In my area, sellers pay for all closing costs, to include the buyers closing costs (unless of course you are the bank selling a foreclosure). In fact, this is such a common practice, that a lot of agents in my area will swear you can't negotiate this and that no matter what, the seller will end up paying for the buyers closing costs. So, I did what any good business person would do and did it anyways. We told each of the buyers that we had multiple full price offers and that the only way they cold sweeten the pie was to lower the closing cost that we would have to pay. Two of the buyers came back with 2k less in closing costs, while the other offered 152k with no reduction in closing costs. It became apparent to me that the buyer who offered 152k was either an idiot or thought I was idiot. Either they couldn't follow the instructions or they knew that the house wouldn't appraise for that much and was counting on the appraisal to prove that point so that they could renegotiate the contract. Either way, we rejected that offer and concentrated on the other two. So, now we had to narrow it down again. We looked at the lenders and realized that one of the lenders the buyers were using has a tendency to push back closing 2 to 3 times on average, while the other lender does the underwriting up front and only commits to a closing date they feel they can actually reach. So, we contacted the buyer with the more favorable lender and asked them to again lower the closing costs and they knocked off another $500 and we were under contract. By the way, the more favorable lender was able to close almost a week earlier than anticipated.

Everything went pretty smoothly from there. The appraisal came back at 143k, which was kinda disappointing since I thought we would at least get 145k. A lot of appraisers will try and make the numbers work, if they are not too far of a stretch and we were hoping that would work in our favor. And it did, just not quite as much as we had hoped. But, the appraiser did try. They even went a bit further out to find comparable houses, which is the only reason why we got what we did. Anyways, I wanted to make up for that 2k that I was hoping to make on top of my profits, so, I asked the buyer to pay for the rest of their closing costs (which amounted to 2k) since they were paying way less for the house anyways. Well, some how, the lender made it work and included the closing costs into the purchase of the home and we made up the difference. 

What I learned: 

First, I learned that not all appraisers are equal. I have since dealt with this appraiser a couple other times and his numbers are always way lower than ours. Maybe he has a hard time envisioning what the house will look like after renovations, who knows. Either way, I take his appraisals with a grain of salt. My only concern of course, is that he will one day be the appraiser used by the lender when I go to sell a house. Hopefully, he will have a better outlook on those properties when they are fully renovated, but we can only hope.

Secondly, maybe breaking the comps by 10k in my area for the price range of houses I am working with a is a bit too much. Perhaps if I had listed the house at 145k, the appraiser would have had an easier time justifying that number and may have even found room to support it. Instead, we got 143k. Then again, maybe it wouldn't have changed anything, but it is something to consider in the future.

Third, don't under estimate due diligence repairs cost and container costs. 

Something else I recently learned is that banks and lenders are more willing work with me on loans and additional credit lines now that the business has been open almost 2 years now. The funny thing is, in that time, I have only flipped 2 houses and the second flip sold in 2018, so it's not even considered during the underwriting process. And after all expenses, I only profited about 20k for 2017, which does not seem like much to go off (especially being that it was just 1 flip) for underwriting. Of course, my other income and credit does help.

Where I am now: Right now, I just finished up a rehab on 1 house, half way through the rehab on another house, closing on a house today and under contract for another house that will close in about a month. Profits will vary from 12k to 20k. I now have 3 lenders willing to fund my flips and decent sized credit lines to cover other expenses. I project that if things go smoothly, we should profit over 100k this year from these flips. 

Lots of useful information there on Fix & Flips.

That is exactly why I changed from doing "Fix & Flips" to buying using Subject To and Wraps and selling to Tenant Buyers. I get $25,000 down from the Tenant buyer, sometimes a few weeks, sometimes a couple of months after I buy the house. Depends on how fast I find a buyer. The new Tenant Buyer does ALL of the Rehab. I simply have the place cleaned and take care of any serious safety hazards. I charge more for the mortgage payment he pays me than what I pay on the underlying loan. It's called "cash flow" and I usually cash flow about $500 per property. Oh, and I don't need to use banks for financing. Does it work? You bet it does.

Fix & Flips are also the highest taxed real estate investment. The TV shows make it look so easy, fast (30 minutes) and profitable. But, nationally most flips take about 6 months from finding the property, to rehabbing, to completion, to selling to funding. So, you're kind of in the "normal" range.

Thank you Dean, for the information. It helps open my eyes.  I can also see how Mike's plan works. It may be the best way to get cash flow.

Wow! Lots of work and lots of surprises. Congrats overcoming a lot and thanks for sharing!

So after a full year of making offers every week (ouch, I remember what that's like) would this have made a decent rental?  Even if it didn't quite gross 1% per month, I was wondering if you considered it?

Thanks again, Dean. Love the lessons learned! It's not all easy HGTV collecting big checks!

@Mike M. I would love to hear more about that. 

@Steve Vaughan I always consider a property as a possible rental for the sake of an exit strategy. Right now, my focus is flipping houses. However, I will be picking up rentals this year as well, in order to offset my income. I will be focusing most of my efforts on multi-family homes, but I will also pick up single family homes that don't make sense as flips, but work well for rentals. My eventual goal is to do a 1031 exchange on these rental properties and pick up some apartments. 

May i ask how you caclulate whether a property is a good flip or good rental. I am assuming if there is alot of equity in it, it can be a great flip. And for rental, is that picking it up cheap, like on a wholesale deal, minor rehab, aesthetics andthen renting it with an roi after expenses at around 8 to 10% if not more? Would be nice to find out how you make that assessment. Thanks

@Ranjit Wasu

A lot of people use the 70% rule, but I personally don't. 

The first number you need to know is the ARV, once you know the ARV, you need to subtract the closing costs (for both purchase and sale), your holding costs (4 to 6 months), the renovation costs and what you want to profit. After subtracting those amounts from the ARV, you now have your maximum offer.

After doing some research and talking to your agent, you should be able to figure out your closing and holding costs and narrow it down to a percentage of the ARV. For me, it is 15% to 16% and I always estimate conservatively.

As for rentals, there are a lot of different methods for determining whether or not a property would make a good rental and how much you should offer on it. I typically use the BiggerPockets rental calculator, but it's basically a matter of taking your average rent price and subtracting your monthly expenses. If there is money left over at the end of each month, then it cash flows. If not, then you need to offer less for the property. Don't forget about other costs like Cap Ex and repairs and maintenance. It will eat into your cash flow and if you are not careful, you will buy a property that you will lose money one each month.

Around here, It is hard to find a property to cash flow for more than $50 to $100 a month per door after figuring in all the current and future expenses, but as long as the property cash flows and is in a decent area, then I am happy to pick it up. My main concern is the offsetting my other income using depreciation.

I should also note that I am not an expert by any means, but I have done my home work and this information should be pretty consistent with other investors experiences. 

@Dean I. Your Comment: "I would love to hear more about that."

It goes something like this,

I buy "off market" houses using Subject To and Wraps, put $50k in to pay them their equity, closing costs, carrying costs (and reserves just in case.) No bank, no qualifying. I own the $200,000 - $300,000 house for under $50k.

Then I sell the house on a lease option or Wrap to a new buyer who gives me $25k down (it's mine to do with as I want) which I use toward another house, and I make about $350 - $500 a month on the cash flow until they refinance 5 or 10 years down the road. So, I get $5,000 - $6,000 a year passive income on every house in addition to the $25k down.

The new owner takes care of all rehab, all repairs, all maintenance. I don't do anything other than pay someone to clean the place up.

I outline the details my my website which since I can't post that link here (Bigger Pockets rule), you would go to my Profile and click on the link there. Jacksonville is big enough to do them there as well.

I like @Steve Vaughan comments about how this isn't HGTV and collecting checks. 

Our latest flip, which went on the market on Friday, was a lot of blood, sweat, and grind! Flipping is in no way a passive endeavour, so proceed with caution. 

That said, you can make a ton of money if you are able to find a juicy deal, which is what we focus on. 

Great job @Dean I. !

@Dean I. Great job in your second flip! I lost 5k on my second flip. So you have definitely done much better than I did starting out. I can relate to what you have mentioned working with banks and trying to access lines of credit. It’s more of a marathon than it is a sprint.

@Mike M. It sounds like you have a great model going. I’m trying to understand the numbers. I’m guessing you have a distressed property or distressed seller (from probate or preforeclosure lists) that is behind on payments etc. but that has equity in their home but can’t quite sell it for some reason. Then you take 50k of your own money to get the property back on track with the bank, pay them out some of their equity so that they can move on, get the property ready for a new tenant buyer, keep the existing mortgage in place, and then you get a new tenant buyer into the property who puts in 25k as a down payment in the case of seller financing or as an option deposit in the case it is a lease option? Am I understanding the model correctly?

Originally posted by @Shiloh Lundahl :

@Dean I. Great job in your second flip! I lost 5k on my second flip. So you have definitely done much better than I did starting out. I can relate to what you have mentioned working with banks and trying to access lines of credit. It’s more of a marathon than it is a sprint.

@Mike M. It sounds like you have a great model going. I’m trying to understand the numbers. I’m guessing you have a distressed property or distressed seller (from probate or preforeclosure lists) that is behind on payments etc. but that has equity in their home but can’t quite sell it for some reason. Then you take 50k of your own money to get the property back on track with the bank, pay them out some of their equity so that they can move on, get the property ready for a new tenant buyer, keep the existing mortgage in place, and then you get a new tenant buyer into the property who puts in 25k as a down payment in the case of seller financing or as an option deposit in the case it is a lease option? Am I understanding the model correctly?

 Some are that way but not all. I just bought one in Mesa AZ that has some work to do on it but had been a "remodel flip" just 4 years ago. The bones are good, there is some painting to do and a little wear and tear here and there, but over all in good shape. The seller wants to move out of town. They've asked for a delayed move out so they can transition, which is fine with me.  The one I am working on in San Antonio is a "Fix & Flip" gone wrong. Lots of those around. HGTV and their shows have been helpful for me. I just contact first time flippers and see if they " are having fun yet". Most aren't. Some are ready to get out of the Flipping business at any cost. I'm happy to oblige.

I found this thread through my keyword alert of "Jacksonville" but mine was supposed to be for Jax, FL... oh well! Loved reading your post about your flips and the ins and outs @Dean I. . It is kind of similar to my situation right now:

I'm in the selling period of my first real flip. It took about 8 months. Purchase Price was $47,200 and repairs/ buying closing costs/holding costs have totaled about $30,000. We listed it at $129,900 and immediately got 1 full price offer and 1 offer $10,000 over asking. We went with the $10k over offer and they backed out within 2 days because of a family emergency. We went with the other full price offer and were 2 weeks into closing and buyer backed out because she couldn't get funding. Disheartening, to say the least! We are now back on the market and I'm getting nervous people are going to get scared because of the original buyer backing out, but I'm keeping my head high. We don't need to make $129,900; but I did find out that it appraised for more than that, so it seems fair. 

It has been a huge learning process for me so far, and continues to be so. It's great to hear a relatively similar story... I needed something to keep my hopes up. 

All that being said, it sounds like you've got some great processes in place and I could learn a lot from you, because I'm still such a beginner. So here are a few questions:

1) Are all your lenders local banks?

2) Do you ever consider private money (family/friends)?

3) How are you talking to the appraisers so much? I can't get the buyer's agent to tell me who did the appraisal.

4) Do you use a GC or do you contract out each repair separately?

5) Are you buying all your homes in one LLC?

Thanks for letting me pick your brain!

@Thea Linkfield

1. All my lenders are local-ish banks. When I first started, I called all the banks I could find without 4 hours of my location and visited as many as I could as well. The first one I found had an office here, but not a real bank, they are located about an hour away form me. The other two are local, but they wouldn't even consider me until I had almost 2 years under my belt.

2. I do my best not to mix personal with business, that said, no one on my side of the family really has any money and I didn't even want to approach my wife's family until I had a proven business model that I was successfully executing. Even then, I still don't plan on asking her family unless I absolutely have to. As for friends, I don't have any that have any money.

3. The appraisers I am talking to are the appraisers my bank uses to make sure that the house is worth funding. I don't know if there is a good way to talk to the appraiser on the buyers side, unless the buyers doesn't mind you having that info. I guess all you can do is ask, but chances are, the answer will be no.

4. I basically have a project manager that uses his contractors from some things and I use my contractors for other things. I was a contractor in my previous life, so I am quite familiar with how things are supposed to be done and when it is not being done properly. If I didn't have that experience, I would use a general contractor or the equivalent. 

5. Yes. I don't see a reason to use multiple LLCs at this point. If my business plan was to buy and hold and I had a lot of properties, then maybe, but then I would also be renting them out, which would be a different business model anyways. Obviously, I will be conducting my house flipping business under a different LLC than my rental business.

As for your current situation, I personally would sell the house for at least the appraised value or the value that your real estate agent came up with during their CMA. I wouldn't sell it for less unless you had to. Also, this is a good time of the year to sell. From what I have seen, houses generally sell faster and for more during this time of the year, then say the fall and winter months.

@Ola Dantis @Mike M.

Luckily for me, I wasn't under any impression that flipping houses was anything like you see on TV. I have had multiple businesses over the years, one of which I was a contractor. So I am quite familiar with the fact that things are rarely as easy as they seem and I didn't go into this venture with rose tinted glasses. Sure, I have some expectations that were not met, but those expectations were set because of my previous experience as a contractor, the research I had done and the experience of those who have gone before me. I also realize that we are dealing with the law of averages, meaning that sometimes things go great and other times, not so much. But on average, you can expect certain outcomes, as long as the appropriate steps are taken.  

@Thea Linkfield When analyzing offers, there is more to it than the first one in or with the highest sales price.

1. Is the buyer 'Pre-Approved', not 'Pre-Qualified'. Some lenders are now going so far as putting the buyer through upfront underwriting so they have everything completed before they make an offer, all the need to fill in for is that actual property.

I would not tie up a property without a minimum of Pre-Approval letter and an earnest money check (or a copy of it from their agent) upfront.  If you are both without an agent, recommend a lender to them and be helpful! My credit union will pay to $5k in closing costs for a purchase, which definitely helps you, because it's less cash they have to worry about coming up with.

2. Which offer has the highest chance of closing?  Say the unit is $150k.  

Offer 1 is $150k cash, 15 day closing.  

Offer 2 is $165k with an FHA Loan, and 30 day closing.

I would be hard pressed to pass up the cash offer if I am priced correctly, because the higher offer requires an appraisal and a lender's inspection. Then they're more likely to want to negotiate if anything needs repair or back out of it doesn't quite appraise.

Best of luck! 

@John King

Unfortunately, most buyers are not going to be Pre-Approved, at least not around here. While I do agree that lenders should do underwriting up front and pre-approve their clients first, this is not yet common enough to pass up offers from those who are only Pre-Qualified. In my area, 90% of buyers will be Pre-Qualified, not Pre-Approved. There are only two lenders in my area that pre-approve their clients first. If I passed up every offer that came in from a Pre-Qualified buyer, I probably wouldn't have sold my first house and thus I wouldn't have a second, third, fourth or fifth house currently under contract, in rehab or on the market. Again, I think this is more market specific, but I hope it becomes a more common practice.

As for the cash offer vs funded offer, I agree that cash is king, but unless we are talking about houses that are much more expensive than 150k with much higher profit margins, I don't think that accepting a cash offer and losing 15k in profit is worth it. The facts are, over 14k of homes are sold every day, most of them funded by banks and most all lenders are going to require an appraisal, regardless of the price. If you did your comps right, you shouldn't have to worry about the appraisal coming back for much less than you estimated. In fact, if you did it right, you should come up with the same number or less, making lender approval a non issue based on value. And unless you have 10k to 15k worth of repairs that you neglected to do during the rehab process, I doubt you will get negotiated down much more than a few thousand dollars. 

Now, I would accept an offer for 5k less if I felt I was pushing the comps, or if the house has been sitting on the market long or if not having that house under contract was causing me to lose other deals. But losing 15k in profit is hard to swallow when your profit margin is 20k or less. Even if there was 30k or 40k of potential profit, losing 15k just isn't practical. As far as I am concerned, if you lose 15k in profit at that price range and at that profit margin range, you did something wrong.

@Dean I. Just noticed you're from Jacksonville, NC not 'The Other One' down in FL.  I spent time there in my younger days at New River.  Yep, different market than San Antonio with 1mm+ population!  

@Dean, tried sending you a PM but the BP app won’t let me (or apparently won’t let me tag you). I’m in the same area with a similar story. Would like to know more.

This is an incredible thread, lots of amazing information and even with pictures of before and after. Thank you for that.

I have few questions, how did you find your agent? And what makes him/her special that you decided to work with them. For someone whose starting out what advise you would give to the agent/ investor of fix and flip.

nice job. question, I don't see your home insurance and property taxes listed on your costs?

also, was this with a partner or just you, solo?

Originally posted by @Mike M. :

@Dean I. Your Comment: "I would love to hear more about that."

It goes something like this,

I buy "off market" houses using Subject To and Wraps, put $50k in to pay them their equity, closing costs, carrying costs (and reserves just in case.) No bank, no qualifying. I own the $200,000 - $300,000 house for under $50k.

Then I sell the house on a lease option or Wrap to a new buyer who gives me $25k down (it's mine to do with as I want) which I use toward another house, and I make about $350 - $500 a month on the cash flow until they refinance 5 or 10 years down the road. So, I get $5,000 - $6,000 a year passive income on every house in addition to the $25k down.

The new owner takes care of all rehab, all repairs, all maintenance. I don't do anything other than pay someone to clean the place up.

I outline the details my my website which since I can't post that link here (Bigger Pockets rule), you would go to my Profile and click on the link there. Jacksonville is big enough to do them there as well.

I don't doubt that you pull that off but - from my experience of doing this for 8 years - 99% of renters live paycheck to paycheck so $25k down is hard to come be, at least for me.  heck, for the flips I have done, they barely have the 3.5% down payment for fha. no wonder they always want a big juicy closing cost credit. :)

Originally posted by @Scott W. :
Originally posted by @Mike M.:

@Dean I. Your Comment: "I would love to hear more about that."

It goes something like this,

I buy "off market" houses using Subject To and Wraps, put $50k in to pay them their equity, closing costs, carrying costs (and reserves just in case.) No bank, no qualifying. I own the $200,000 - $300,000 house for under $50k.

Then I sell the house on a lease option or Wrap to a new buyer who gives me $25k down (it's mine to do with as I want) which I use toward another house, and I make about $350 - $500 a month on the cash flow until they refinance 5 or 10 years down the road. So, I get $5,000 - $6,000 a year passive income on every house in addition to the $25k down.

The new owner takes care of all rehab, all repairs, all maintenance. I don't do anything other than pay someone to clean the place up.

I outline the details my my website which since I can't post that link here (Bigger Pockets rule), you would go to my Profile and click on the link there. Jacksonville is big enough to do them there as well.

I don't doubt that you pull that off but - from my experience of doing this for 8 years - 99% of renters live paycheck to paycheck so $25k down is hard to come be, at least for me.  heck, for the flips I have done, they barely have the 3.5% down payment for fha. no wonder they always want a big juicy closing cost credit. :)

 I'm not desperate to accept the first applicant. I ask them on the phone "how much do you have to put down?" If they have enough, the other issues go away. If they don't, I advertise more.

@Marvin Ong

I went through a couple agents before I settled on the one I have now. This particular agent worked under a broker that is also house flipper. This allowed him to pretty much learn the ins and outs of flipping houses in this area, which means he knew how to analyze a deal and he knew what areas did well and which ones didn't. He also thinks more like a business owner than an employee. All of these attributes is what makes him a great member of my team. He is also a great guy and we get along well.

My suggestion for you is to find an agent who is investor friendly, thinks like a investor or a business owner and is hungry for work. Typically the big wigs wont have time to deal with you. Most agents are used to showing a home buyer 5 or 6 houses and then the buyer picks one. You may have to look at 10, 20 or 30 and put in just as many offers before you get one accepted. They need to know this up front and you should be willing to pay them more for this fact IMO.

Also, I would maybe look on bigger pockets for an agent. If they are on this site, then they are probably investor friend and probably trying to learn beyond their typical job and become an investor themselves. This can make for an invaluable partnership or team member. Also, I personally would stay way from agents that are currently working for other investors. My agent doesn't work for any other investor and my agent has since broken away from the other investor. Even when he was working with the both of us, he did well on looking out for both of our interests, but I don't think most people can make that balance.

@Scott W.

Oh, your right. I can't pull up the reports right now, but I believe it was around $1200 for both builders risk insurance (I think that is what they called it) and flood insurance. But I am also getting a refund check from the insurance company for unused time. As for taxes, I would have paid around $300 for taxes (rounding up) for the time I held the property.

$300 total taxes or $300/month? if it's $300 total, for 4 month rehab plus the closing waiting time, that sounds way too cheap?

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