A Second Opinion to Help a Newbie Analyze My First Flip

10 Replies

Hello BP,

I am looking at a deal right now and I would like a few more opinions.  The house I'm looking at is a 3/2 in a good neighborhood in Florida, about five minutes from the water. It was built in 1970 but from pictures it looks like a rehabber updated it sometime recently. I am concerned however because it has some fire damage and the bank will not let me in to see it because of the apparent risk from the damage. but from pictures it appears to be mostly unscathed. So assuming that the damage is not severe I'd like to run the numbers by the illustrious BP Nation!

Purchase price is $69900, the comps in the area range from 140k to 190k 

I plan on using a HML for 70% ARV(105k) leaving me 35k for holding costs and renovation. I used the Flip Calculator and if it took 120 days to close for a Sale price of 150k I would make about 17k is that a good investment? And as a follow up: How can I get in touch with a Hard money lender? the online apps I filled out only added me to their email list and I have yet to talk to anyone about procuring financing. 

Thank you for your time!

AJay

There is definitely a spread there @AJay Williams . I'd recommend talking to a couple local agents to run some CMA's to help you narrow down that ARV so you can get a better idea of your exit value.

@Mathew Nixon

I am working with one realtor and I'll ask a couple more

@AJay Williams  

I would skip the HML if you can and see if you can partner up with some folks here on BP.

4 months from close to close on a fire damaged property from a bank sale is aggressive.  Possible, but aggressive.  I'd bank on at least 6 months, but I don't know how long it takes your local fire inspectors to approve the renovations.

In best world scenario your numbers are decent. But make sure to factor in a few more things. The extent of the fire is very important. I am a professional firefighter and I can tell you that not only the fire itself can cause a great deal of damage, but the water used to put it out can compound the damage. Which can lead to further structural concerns, possible mold, etc. Aaron is correct in factoring in the fire inspector/town's permission.

When factoring your rehab costs also recognize that smoke damage and excessive heat can sometimes effect many areas of the house that are not even in the room where the fire was contained.

Also, I know this goes without saying, but before you make any decisions I would visit the building department for that town and verify if all of the renovations done by the previous rehabber were permitted. Considering the comps, it looks like you might have a good cushion to absorb some unforeseen overages, but it is a risk.

Ditto to ^ @Aaron Montague   You'll be a lot happier planning for a 6-8 month renovation and making a good margin than planning a a 4 month renovation and barely breaking even. It's easy to jump into a sub-par deal, taking the time to make sure it's a great deal is a different game. With the HML's, call them. Make sure you stay on their radar and let them know how serious you are.

Also, not sure if you could potentially talk to the fire department about the building structure?  I don't have any experience with fire damaged property, but they may be able to give you some insight into the structural integrity of the building, or possibly approve a visit.

Good luck!

@James Loisou  thanks for the info about water damage/ renovation permits. You said it goes without saying but honestly I'm glad you did because I didn't think about that.

@Aaron Montague  I am not opposed to looking for partners here but how would you suggest I look for it? Just post on the forums?

check out J Scott.  He has it to down to a science.

Two great books on Flipping and Re-Hab

@AJay Williams  

Lots of great posts here on BP about partnering, but the bottom line is "show me the money!"

I'm assuming you are a rookie.  Which isn't a bad thing, you just need to do more work to show investors that you are worth risking 100k of their money on.

Details, details, details. Narrow that ARV down. 10k MAX spread at those numbers. Put up comps that are physically close to the property that prove your ARV. 3 in the last 3 months in a minimum.

Fire damage screams expensive rehab to me.  You need to know exactly what damage was done, take lots of pictures and know which structural components need to be rebuilt.  

Fire damage sounds like at least 25k alone.  Most likely happened in the kitchen, took out a wall and at least 1/2 the roof.  So new kitchen 7-12k, new wall 2-4k, new roof supports 3-5k and new roof 5-7k.  Now maybe I'm completely wrong and it was just a chimney fire that make some ugly scorch marks on the spanish tile roof that can be wiped off.  (replace chimney liner $1400)  Those are the details that your investors are going to want.

Get all of those numbers.  Get into the house.  Take TONS of pictures.  Get at least 3 rehab quotes from local, licensed contractors (your family members are great, as long as they are licensed and insured) and post a complete strategy here on BP with exactly how much your estimate everything is going to cost.

If you have cash of your own to put up, good.  Obviously you don't have 105k in the bank or you'd already own the place.  But if you are putting up 10k of your own money you look much more likable than someone looking for 100% financing.

Go forth, put together a great renovation and do the community proud.  Make money for one investor and the herd will find you :)

@Aaron Montague  that was an amazing answer. Thanks for the help, I just woke up and that post woke me up wider than the coffee I'm drinking. I will go fourth and when I'm done I'll be sure to let you know I'm posting it so you will take solace knowing your advice didn't fall upon deaf ears.