Beginner investor looking to learn basic concepts of flipping

6 Replies

Good Morning, My wife and I are looking to get into flipping. I took the college path, and never got into construction, but after talking to a realtor friend, he directed me to BP. I have been listening to multiple pod casts at work, and have narrowed down that my “business model” to flipping and have been listening to those podcasts! It’s amazing stuff, and has inspired me to to get the wheels moving into motion on investing. My dad is a contract salesman who works with local flippers/contractors daily and bids out jobs, so I am going to lean on him for a lot to make sure that contractors are bidding appropriately, and the work is done timely. He will be giving me the names of a few contractors that he trusts too, which is awesome. I have reached out to multiple people within my area and am planning on buying them a beer/coffee/meal to pick their brain, after the holidays. One flipper has already told me to try and not use my own money, but that you should have money as an insurance policy, which I do. I want to make sure I am on the correct path before going to a lender (bank/hard money), for the loan and am asking BP to be very critical of my plan going forward. I love feedback, I need feedback to make sure this works for my family. Below is my plan, and I want to make sure I have all of my ducks in a row first. Please critique my hypothetical plan for this flip. My flip revolves around the house listed below: See what I found on #Zillow! https://www.zillow.com/homedetails/1952-S-15th-St-Omaha-NE-68108/75836708_zpid It is for sale for $50,000.00 Sale Cost - $35,000.00 Utilizing the 70% rule, I would be making an offer of $35,000. Fixed Cost - $10,000 Fixed costs would be 10% of retail value according to J. Cole. Similar houses are for sale in the area for $135,000 for completely renovated houses. I am looking to just put in new flooring, paint, and countertops (low end due to the area). I believe I could sell this house for $100,000 after a quick rehab. Rehab Costs - $20,000.00 Although flooring, paint and countertops won’t cost $20,000.00, from the pictures it seems some of the meters may have been stolen, so I am concerned that copper thieves may have gotten to it, so this accounts for unknown costs. Loan Amount - $65,000.00 This is the amount that I buy the house for, plus fixed costs, plus rehab costs. Loan Payment - $1625.00 I figured this by utilizing an annual loan rate of 10%. $65,000 *10 = 13,000/12 = 541.67. With the rehab/sale taking 3 months, I have accounted this expense for $1,625.00. ( I am not sure if this is already taken into account in the fixed costs or not) Profit - $33,375.00 This is determined by taking the Sale of the house, less the loan amount, less the loan interest Sale price 100,000 – loan 65,000= $35,000 $35,000- loan interest 1,625=$33,375 $33,375.00 = $Profit I feel like this is a huge profit, and am afraid that I am missing something. Any and all critiques are welcomed. Thank you, Tony

I read this pretty quickly and looks sound but not sure if you calculated closing costs on both sides of the transaction (buying and then selling). Figure about 3% in closing costs when you buy the home (2% commission and 1% in closing fees) and than 7% when you sell (6% commission to agent and 1% escrow, title, etc.)

Michael,

I thought I took that into consideration with the 10% fixed costs.

When buying at 35,000, 6% = $2,100
When selling at 10,000, 6% =$6,000

Leaving $1,900 for other concessions, like home warranty, and small fixes.

Consider living in the home for two years before selling so that you can take your profits tax free. This is called a "live in flip" if you would like to look deeper into it. Im on my second live in flip now, its a little slower but its great to keep all of the profit. good luck!

Grayson,

If I was smarter in my 20s I would have done that!

Currently, I already have a house that my family and I live in, and wouldn’t consider moving.

Originally posted by @Tony Cimino :

Michael,

I thought I took that into consideration with the 10% fixed costs.

When buying at 35,000, 6% = $2,100
When selling at 10,000, 6% =$6,000

Leaving $1,900 for other concessions, like home warranty, and small fixes.

 Yes my fault, overlooked that. Thank you

Is the 10% enough?

Anyone else have other tips or thoughts?

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