New to Real Estate · Philadelphia · Member since 2024 · 16 posts · 8 votes
Hi Everyone,
I am new in real estate, purchasing my very first investment property. My partner and I are under contract to buy a SFH in Fishtown, Pennsylvania. The house is build in 1875. The inspection showed more issues than what we anticipated. I am guessing this is common for the age of the house.
We are negotiating to get it under 200K, and invest 65-70K. Based on our calculations for repair, carrying cost, closing cost, the all in cost will be 283K. Once we sale, based on other comp in the area, our net profit will be around 30K. My question to you guys is...would you go through a flip for 30K or less before taxes.
Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
2y
I would only do it if you were okay holding on to the asset for the long term. $30k can turn into $8k or 0 really fast - whether that is due to unexpected costs - especially on an 1875 vintage home - or your ARV estimate being off. I'd be okay taking a swing for a $30k profit if it's a good buy and hold property. Otherwise, I'd pass.
Rental Property Investor · Philadelphia, PA · Member since 2021 · 774 posts · 501 votes
2y
Uendy - Thanks for providing some details and information! Before I answer, can you confirm that your costs include holding costs (all utilities), transfer costs on purchase and sale, as well as the cost of the funding for the deal? (especially if you're borrowing money for the deal). One of the biggest factors to consider is timeline as well. Do you anticipate a 3-4 month rehab period prior to listing? If so, how long is your assumption until closing? Maybe another 3-6 months? My initial reaction is that if you total costs are $283k and the length of the project is ~9 months or so, you annualized return is about 14% - which I would classify is "good, but not great". I would suggest you target a 20-30% annualized return on a flip considering the timing, funds invested, and return. Everyone has their own criteria, but that is generally my rule of thumb. Good Luck!
New to Real Estate · Philadelphia · Member since 2024 · 16 posts · 8 votes
2y
Thank you Greg for taking the time to answer my dilemma. I should have mentioned that we are not funding this deal since we are paying in cash.The carrying cost includes: taxes, insurance, and utilities. Our timeline is about 5 months, which includes 2 months of rehab plus 3 months to sale.
Investor · Phoenix, AZ · Member since 2018 · 315 posts · 157 votes
2y
@Uendy Garcia in general $30k projected profit is pretty slim. There’s not a lot of margin for error in your assumptions. One oh-$hit during rehab can eat into that very quickly. That said, a projected $30k return may be a great opportunity if the hold time is short, if you want to keep your crew/contractor (or funds) working, if there is very little risk in the rehab, etc. It also depends on how conservative your underwriting assumptions are. The more conservative the underwriting the more likely you’ll exceed the $30k return.
Investor · Ankeny, IA · Member since 2022 · 159 posts · 129 votes
2y
@Uendy Garcia, to echo @Greg Kasmer's response, always look at COC on that initial deal. However, I think it is important to look at what you will do with that capital you generate. While a single deal might only be a 'base hit' versus a 'home run', it could set you up for something bigger and of course, each deal you do, you gain experience as well which will benefit you in so many ways.
So on the surface, this sounds like a solid deal, compare it to any other available options and if it makes the most sense, pull the trigger, kick it out and then keep growing into the next one.
Rental Property Investor · Ellsworth, ME · Member since 2021 · 1k+ posts · 2k+ votes
2y
I would only do it if you were okay holding on to the asset for the long term. $30k can turn into $8k or 0 really fast - whether that is due to unexpected costs - especially on an 1875 vintage home - or your ARV estimate being off. I'd be okay taking a swing for a $30k profit if it's a good buy and hold property. Otherwise, I'd pass.
Real Estate Agent · Philadelphia, PA · Member since 2020 · 294 posts · 245 votes
2y
@Uendy Garcia Congrats on taking the jump into the crazy world of investment real estate. I see a few sides to this coin, based off your numbers your around a 10% return on your investment which on the surface is not the best. Most of the investors I deal with typically expect 22-30% return like @Greg Kasmer said as well depending on the area, using this formula (purchase+rehab)/ARV as a very basic formula to calculate returns.
Again 10% return is not the best so look for more profit in the future. That being said, the value of getting your foot in the door, getting your team together, and pushing through any problems you occur is priceless. On top of that if your spending 65-70k I would assume your doing mostly cosmetics with touching up the mechanicals as needed which is a good starter rehab as well. Normally you see people get into this space and they want a clean house as is and simply want to do cosmetics to it which seems easy enough. In reality what happens is you end up paying more for a "clean house" but because you are doing a flip people want new mechanicals (central air, 200 amp electric, pvc plumbing stack) so you end up doing a full gut or larger rehab then simple cosmetics and now your returns have shrunk.
In your situation for your first investment I would be ok with a smaller return because of the experience gained, but for the next look for larger profit.
Investor · Philadelphia, PA · Member since 2019 · 618 posts · 430 votes
2y
Sub $200k in fishtown with only $70k reno seems plausible but not the norm. If those are realistic numbers Im still not sure Id do a deal for $30k in the current market. These older rowhomes always have some issue that will equate to unexpected expenses. Happy to talk details if you want as I live and invest in the Fishtown area.
I would only do it if you were okay holding on to the asset for the long term. $30k can turn into $8k or 0 really fast - whether that is due to unexpected costs - especially on an 1875 vintage home - or your ARV estimate being off. I'd be okay taking a swing for a $30k profit if it's a good buy and hold property. Otherwise, I'd pass.
1000%. If you have another exit strategy that you'd be happy enough with - holding on to it for a number of years instead of getting your funds back on your projected exit timeline - then that provides some risk reduction.
@Uendy Garcia in general $30k projected profit is pretty slim. There’s not a lot of margin for error in your assumptions. One oh-$hit during rehab can eat into that very quickly. That said, a projected $30k return may be a great opportunity if the hold time is short, if you want to keep your crew/contractor (or funds) working, if there is very little risk in the rehab, etc. It also depends on how conservative your underwriting assumptions are. The more conservative the underwriting the more likely you’ll exceed the $30k return.
Hi Bryan, I have been very conservative on my numbers since this is my first fix and flip project. Besides, the holding time is less than 6 months total. I appreciate your input.
Sub $200k in fishtown with only $70k reno seems plausible but not the norm. If those are realistic numbers Im still not sure Id do a deal for $30k in the current market. These older rowhomes always have some issue that will equate to unexpected expenses. Happy to talk details if you want as I live and invest in the Fishtown area.
That is the question I have been asking myself, Eric. I, now understand why some investors do not want to repair older homes. I will be contacting you in private for some suggestions.
@Uendy Garcia, to echo @Greg Kasmer's response, always look at COC on that initial deal. However, I think it is important to look at what you will do with that capital you generate. While a single deal might only be a 'base hit' versus a 'home run', it could set you up for something bigger and of course, each deal you do, you gain experience as well which will benefit you in so many ways.
So on the surface, this sounds like a solid deal, compare it to any other available options and if it makes the most sense, pull the trigger, kick it out and then keep growing into the next one.
Thank you for your advice, the only way I will gain experience is going through it. I really appreciate everyone on the topic.
Attorney · Philadelphia · Member since 2018 · 2k+ posts · 3k+ votes
2y
@Uendy Garcia Margins are far too thin to approach this as a flip. Don't believe you have to flip a home in order to gain experience. You can go through the renovation process and keep the rental. In fact, as long as the property performs well as a rental I would urge everyone who wants to undertake renovations to first begin with rental assets. The worst decision anyone can make is to take on flips that only perform as a resale as a first renovation project. Typically even if you run into reasonable unforeseen expenses, those added costs can be absorbed by a rental asset over time whereas the same can't be said about a strictly for-sale area. I am not sure if the property you are exploring has the flexibility to perform well both as a re-sale and rental but certainly something to consider.
I am new in real estate, purchasing my very first investment property. My partner and I are under contract to buy a SFH in Fishtown, Pennsylvania. The house is build in 1875. The inspection showed more issues than what we anticipated. I am guessing this is common for the age of the house.
We are negotiating to get it under 200K, and invest 65-70K. Based on our calculations for repair, carrying cost, closing cost, the all in cost will be 283K. Once we sale, based on other comp in the area, our net profit will be around 30K. My question to you guys is...would you go through a flip for 30K or less before taxes.
Thank You for suggestions!!
Uendy Garcia
Hi Uendy, we are rehabbers and lenders in the Delaware Valley. We purchase in Upper Darby and Drexel Hill. I have also rehabbed in Brewerytown and University. I would pass on any project that does not have at least 45k clearance. In Philadelphia, hidden problems are just around the corner with every L & I inspection. Also, you need to know the rules regarding licensed contractors and tax abatements.
I would pass on this deal with a thin profit margin. I like to see a minimum 50k spread on any project. The greater the total costs the higher the spread. Remember, a rehab project is not static. The reward must be greater than the risk. Good luck!
Rental Property Investor · Upstate, NY · Member since 2012 · 3k+ posts · 3k+ votes
2y
Everyone above has valid points, but just maybe the low margin will be worth thousands as a learning experience for your future deals. In the old days those we squeaked by on were sold with seller financing @ 10-12% to mitigate the $$$ pain & suffering.
Lender · Nationwide · Member since 2023 · 362 posts · 237 votes
2y
I think a 30k payout is great. Would take that on my flips but the big question is, how much work will it be for you? If its becomes your full time job for the next 6 months, then no, I wouldn't do it. However, if you have a team in place to help you with flips like I do and its nearly passive, I would take that pay out every time. Another thing to remember though, in this market, properties aren't selling for what we "hope" or their ARV. So have strong comps to show that it will actually sell at your expected price.
I would only do it if you were okay holding on to the asset for the long term. $30k can turn into $8k or 0 really fast - whether that is due to unexpected costs - especially on an 1875 vintage home - or your ARV estimate being off. I'd be okay taking a swing for a $30k profit if it's a good buy and hold property. Otherwise, I'd pass.
Thanks for sharing, I am analyzing if this is a good deal or not. Even though, I wanted to get the experience of going through a fix and flip, but not at a cost of losing the funds.
Investor · Fort Washington, MD · Member since 2014 · 1k+ posts · 1k+ votes
2y
It kind of depends on the person. People are saying its a very thin margin because what you have mapped out on paper most likely wont be the case; especially as a newbie. You are doing an awesome job and seem to have thoroughly researched and assessed. However, even with experienced investors, its very very very very very easy for that 30k profit to tun into a break even or loss. Flipping is hard with dozens of simultaneous moving parts and there is no way to anticipate all contingencies. Im experienced and still get kicked in the nuts at times. A newbie with a home this old, there will be more coming your way. For me, ending up with an actual 30k is fine because deal flow is slim these days. However, I have many exit strategies. One is, it must be able to be supported as a viable rental if it hits the fan.
Everyone above has valid points, but just maybe the low margin will be worth thousands as a learning experience for your future deals. In the old days those we squeaked by on were sold with seller financing @ 10-12% to mitigate the $$$ pain & suffering.
Did you tie your money up or did you have a lender that did not mind you doing a wrap?
I am new in real estate, purchasing my very first investment property. My partner and I are under contract to buy a SFH in Fishtown, Pennsylvania. The house is build in 1875. The inspection showed more issues than what we anticipated. I am guessing this is common for the age of the house.
We are negotiating to get it under 200K, and invest 65-70K. Based on our calculations for repair, carrying cost, closing cost, the all in cost will be 283K. Once we sale, based on other comp in the area, our net profit will be around 30K. My question to you guys is...would you go through a flip for 30K or less before taxes.
Thank You for suggestions!!
Uendy Garcia
NO!!!! One reno mistake, you lose. 6 months to make 30k 18ksih on a 270 investment, terrible
@Uendy Garcia, to echo @Greg Kasmer's response, always look at COC on that initial deal. However, I think it is important to look at what you will do with that capital you generate. While a single deal might only be a 'base hit' versus a 'home run', it could set you up for something bigger and of course, each deal you do, you gain experience as well which will benefit you in so many ways.
So on the surface, this sounds like a solid deal, compare it to any other available options and if it makes the most sense, pull the trigger, kick it out and then keep growing into the next one.
Hi Ryan, I like the "base hit vs a home run" analogy. As you mentioned before, the experience I gain with this deal could set me up for something bigger. It is a good start. Thank you for your reply.
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
2y
@Uendy Garcia the last time foreclosure properties made sense was as profits were coming down because of overbidding the pros came down to accepting an 18% profit on the total purchase price and invested capital excluding personal time value. You are at around 11% projected profit a very slim profit and no room for error. Unless you love this property and if worse came to worse and you had to keep it would you be ok? Maybe a keeper and a sale another day.
@Uendy Garcia, to echo @Greg Kasmer's response, always look at COC on that initial deal. However, I think it is important to look at what you will do with that capital you generate. While a single deal might only be a 'base hit' versus a 'home run', it could set you up for something bigger and of course, each deal you do, you gain experience as well which will benefit you in so many ways.
So on the surface, this sounds like a solid deal, compare it to any other available options and if it makes the most sense, pull the trigger, kick it out and then keep growing into the next one.
Hi Ryan, I like the "base hit vs a home run" analogy. As you mentioned before, the experience I gain with this deal could set me up for something bigger. It is a good start. Thank you for your reply.
@Uendy Garcia the last time foreclosure properties made sense was as profits were coming down because of overbidding the pros came down to accepting an 18% profit on the total purchase price and invested capital excluding personal time value. You are at around 11% projected profit a very slim profit and no room for error. Unless you love this property and if worse came to worse and you had to keep it would you be ok? Maybe a keeper and a sale another day.
Hi Jeff,
At first, we loved the house due to its location. However, I came to the realization that if this is a business, we should not develop any attachment. Since we are not financing this deal, we can not keep it as a long/short term rental. Our plan is to fix and flip to move on to the next project, thanks for your input.
@Uendy Garcia the last time foreclosure properties made sense was as profits were coming down because of overbidding the pros came down to accepting an 18% profit on the total purchase price and invested capital excluding personal time value. You are at around 11% projected profit a very slim profit and no room for error. Unless you love this property and if worse came to worse and you had to keep it would you be ok? Maybe a keeper and a sale another day.
Hi Jeff,
At first, we loved the house due to its location. However, I came to the realization that if this is a business, we should not develop any attachment. Since we are not financing this deal, we can not keep it as a long/short term rental. Our plan is to fix and flip to move on to the next project, thanks for your input.
Keep emotions out of it, Its business. This is NOT a deal you should do. get it for 40k less then do it ,