New Investor in Rhode Island

[Ricardo M.]

Hello all, newbie investor here from Rhode Island. I've completely fallen in love with this community and the endless amounts of information that it provides. I plan on delving into fix and flips via hard money in 2015, my goal being 4 flips in total for the year to start off. I've read both great books by J Scott so I'm more or less familiarized with the process, however I do have a question. I have $20,000 towards this venture, is that enough? If not, what would be the appropriate amount of funds needed? Bear in mind that I plan on doing each flip one after another, not simultaneously. Thank you guys in advance.

[Anthony Thompson]

@Ricardo M. Every deal is different, but yes you need to keep all of that in mind.

I was only referring to the rehab part of the deal structure, saying you should include a sizable buffer for extra rehab costs on your first few deals.

Things like closing costs and holding costs like taxes, insurance (vacant property insurance if you won't be living there), utilities, private/hard money interest, etc. are totally separate and need to be factored into your purchase price also - unless you like losing $ or working for free.

Oh and don't forget to include your PROFIT in your calculations - if you don't factor it into your purchase price, it won't be there when you sell.

Basically if you are going to "fix and flip", you need to (as Steven Covey said) "begin with the end in mind" and start with comparable sales ("comps") for similar properties (same area, same type of property) sold within the last 6 months, to determine "after repair value".

Then you subtract your closing costs to buy, holding costs including loan interest (I would plan for 6 months on your first few deals even though that's generally on the high side), your rehab costs with a significant buffer for error, closing costs to sell (including agent commission - don't kid yourself that you're going to sell it without an agent), and your desired profit.

That gives you your "maximum allowable offer", which should not be your opening offer to the seller/bank. That is a maximum, so you must expect push back / negotiation and start lower (5 - 25K lower depending on the size of the deal and how much you want.

It is also useful, and good practice, to do a "buy and hold" analysis even if you intend to flip it. Basically if the market turns (e.g., interest rates go up and buyers disappear for some time), will the property make or lose $ based on the $ you had to put into it to get it to rentable condition and the market rents for similar properties.

In all things, be conservative. Overestimate your expenses and how long things will take, and underestimate how much you'll get when you resell. It would be better to have it take longer to find your first deal due to being conservative, than to be too aggressive with your #s and lose $ and maybe be blown out of the game early on.