I'm new to BiggerPockets and thought I would introduce myself with my first fix and deal. I'm based in the Los Angeles market and 6 weeks ago I made the decision that I was going to flip 6 houses in 2018. I said if I was going to be serious about it, I needed to find a flip-worthy property in Los Angeles and close escrow before the end of 2017.
Well, I did it!
I closed escrow on my first fix and flip in Los Angeles right before Christmas and I’ve already learned some lessons! Lesson #1: Don’t close escrow right before Christmas. At least not if you want to get any work done before the end of the year. :-)
With that said, I’m super excited about the project and work begins this week. It’s a 3 bedroom, 2 bathroom Charles DuBois mid-century modern architectural with a little over 2200 square feet. I’m going to make it a 4 bedroom, 3 bathroom with a bigger kitchen, new wood floors, more open floor plan and a true master bathroom.
I was able to get the house under asking price at $835,000 without multiple offers because I snatched it up an hour after it fell out of escrow with a previous buyer. A house with a similar floor plan that needed major foundation work and had wood rot and would have cost double the amount to rehab got 42 offers in 48 hours and sold for $20k more than what I paid so I feel that I got a good deal.
I’m still getting bids from contractors, but the rehab, carrying costs, and staging should come in less than $100,000. After it’s done, I plan on listing the house for $949,000 or $999,000 with a target sale price between $1,100,000 to $1,200,000.
Here are a few before photos.
If you're a real estate investor fixing and flipping houses in the Los Angeles market, I would be great to meet you.
Congrats on the first deal Gregory, it looks awesome
@Gregory Storm Sounds like you got a great deal - congrats on that!
You're starting off with a house that looks good as it is. The value-add of an extra bed and bath is a good strategy.
One suggestion I'd make is to put a "For Sale" sign up right away and add a "Coming Soon" rider to the top. You can buy both on Amazon.
The idea is to start getting buyers interested in advance. Anything you can do to speed up your sale will reduce your carrying costs (hard money, taxes, insurance).
Your numbers are kinda tight. Did you use hard money or your own?
Looks already nice. You could probably sell as is and avoid the rehab work and move on.
Not being from California, I'm always amazed at the numbers. Not knowing how the process out there works either, makes it a little tricky to truly understand. But based on what I think I understand from your numbers, you're going to be all in on a house at 935k (835k purch plus 100k rehab) and you're going to list it for 999k yet you're targeting a sale price between 1.1 and 1.2mil?
Is that how california is working right now? Offers coming in at 100k to 250k above list price?
Even at 999k, I'm assuming closing costs of 50k to 60k (realtor fees of 5% at a minimum would be 50k) plus holding costs of at least 2 to 4 mos? Is there even any profit at a million dollar sales price there? Is the house really worth 1.1 or 1.2 mil? If so, then why would you list for 1 mil?
Or is it just that the properties in that area/price range always go that far over list price?
@Mike H. His number is tight but then this is his first flip. I believe the 1m is to get a bidding frenzy, 50-150 offers and such. 5% realtor is too much. Probably a flat rate listing is best, the house already looks great as it is. 100k rehab could probably make it.
This looks like a valley circle woodland hills classic property
@Michael Sato Thank you!
@Charlie MacPherson Interesting Idea. This property is on a quiet cul-de-sac so I don't know how useful the sign would be with only two other houses there, but I like the idea for the future. What has been your results with putting up the sign? Did you have your own placard made with your phone number or did you put your agent's information? In terms of getting buyers interested early, I'm documenting some of the rehab work on a mid-century modern Facebook Group and there are potential buyers in that group who love these types of homes. I made a post yesterday that has already had almost 50 comments in less than 24 hours so I think continuing to post there will be helpful.
@Dennis Canon Thanks. Yes, I used hard money. I don't think I could sell it right now for a profit without making changes and adding some value. It was already in really nice condition with good agents and competent marketing and I got it as-is for $835,000 only a few weeks ago. Even if I tried to get $850,000 I would loose money with agent fees and closing costs. Can you give more details about my numbers being tight?
@Mike H. I'm from California and I'm still amazed by the numbers. It's crazy expensive here. I saw a property yesterday where they wanted $1,275,000 for a tear down in Encino. A tear down for $600 per foot! The house won't sell at that price because a new construction around the corner is asking $595 per foot but I digress. I think it's very cool when I see deals in other states where you can buy, fix, and flip a house for less than $50,000 and still make a profit but that is not the LA market.
In terms of offers, this property from the same architect as mine and in original 1961 condition was listed for $749,000 and had 42 offers in less than 48 hours and sold for $851,777 in 3 days https://www.redfin.com/CA/Los-Angeles/23511-Canzon...
This flip property, which is similar to mine, listed for $999,000 and sold for $1,100,000 in 9 days. https://www.redfin.com/CA/Los-Angeles/22410-Hatter...
Contrast those with this flip property, which is also similar to mine listed for $1,149,000. It sat on the market for 43 days and had to do two price reductions and closed at $1,085,000. https://www.redfin.com/CA/Los-Angeles/23711-Ladril...
I'm going to be all in around $950k ($250,000 out of pocket) when you factor in closing costs when I bought it. Let's go with a $999,000 sale price. If I were to pay a 1% seller's commission and the standard Los Angeles 2.5% buyer's commission, I would make about $4,000 in profit. Not a lot of money considering how much time and effort would have gone into the deal, but I would have completed the project, provided a beautiful home to the new buyers, quickly paid back my lender, solidified my position as somebody who can get a deal done with local agents, and be ready to move on to the next project.
Breaking even or not loosing money on my first flip is a win. Not a big win, but it gets me on base. Get's me on base by getting hit by a pitch, but at least I didn't strike out.
Now, assuming my strategy of listing for $999,000 or $949,000 works, the house won't sell for either of those numbers. It will get multiple offers and be a "Hot House". Let's say it closes for $1,100,000. In that scenario, I would be $250,000 out of pocket and make around $100,000 in profit.
That would give me a 40% return on cash in about 4 months.
Instead of getting hit by a pitch, making $100k in profit & 40% return would be a solid triple. If I can get rehab costs lower and sell for higher than $1.1M, it could be a home run.
Yea. Those numbers just scare me. :-)
A million dollars at risk so you can make 4k?
What scares me even more is that you basically had two houses just like yours that sold. One went for 1 million and the other for 1.1 million. But you're basing your listing strategy on the fact that the higher one listed for less and got more and the lower sales price one was listed higher and got the lesser number.
I'm not suggesting thats not how it works out there as I would have no idea. But its just so funny hearing someone share that as its so counter-intuitive for what we would do out here.
There's definitely some common ground in terms of not wanting to overprice your house from the beginning and having it sit, then price drop, etc. But in the end, I would suggest that if someone thinks their house is really worth say 250k, then they're going to list it at 255k or so because 1) they may get the higher price and 2) they know most buyers like to get a little something off so they think they're getting a deal. :-)
I definitely have seen some homes go above list price here as well. But its rare you see someone price their listing out with that as a strategy. Its truly california crazy there.
I would still be hesitant to be on the hook for a million dollars just to be able to make 4k. Even if it is your first one. I would much rather my first deal in that kind of price range have a really big cushion because I would expect some things to go wrong and want to mitigate the chances of coming out of pocket as much as possible.
But california investing definitely seems to be a unique animal where you just have to take your shot. I'm a big believer in that part of the process. Good luck. And hopefully, you'll be able to push a lot closer to that 1.1 million.
Thats a BIG roll of the dice .
Neither of the sold remodels comps from this architect in my example sold for $1,000,000. One sold for $1,085,000, the other sold for $1,100,000 and one just closed yesterday at $1,150,000.
$250k is low in Los Angeles. You'd be hard pressed to get a 0 bedroom, 1 bathroom studio condo in highly desirable areas at that price. I don't know how high the demand in your area is or what the inventory is like, but where this property is, the demand is high as it's home to one of the best schools in the United States so it's very desirable.
With that said, I think if were selling a house that I knew would sell at $250k, yes, I could list at $255k and have it sit on the market and finally get a buyer who wants a discount because the house sat too long. But I would probably go the same route and list it at $224,900 or $199,900 and get a bidding war. That's how the Los Angeles market is. Almost everything worth buying gets multiple offers within days, if not hours. If you get a good house for under asking price in a desirable neighborhood, it's rare.
I'll explain the thinking behind my $999k/$949 strategy. Go to Redfin.com and Realtor.com and click on the Price drop down. When you go higher in price, here is what you'll see in terms of the jumps.
$1,500,000 etc., etc.
$1,000,000 with no other options.
If you expect a sale price of $1,100,000 I don't see any upside to listing at that price because you are loosing a lot of potential buyers who search $1,000,000 and under who could probably afford higher. You are also loosing the heat and activity on the house and missing out on the opportunity to put a clock on your listing as a "Hot Home" on Redfin.
You probably have a lot more experience in flipping houses than I do I'd like to know what you see as the downside because I don't see the downside of listing lower, at least in the hot, low inventory pockets of Los Angeles. Thanks.
@Gregory Storm what is the rate you're getting from your HML. Is it 80% and you put down the 20%? Are you then paying the rehab with your own money?
I'm just thinking that the rehab which will need drawings, permits, nice to high end materials could be close to $100k. How much and how long are you figuring holding cost would be? To be honest this is a big project for being your 1st flip. It's high in price, rehab and market. Let me know if you need help. I'm kinda local. I live in Lakewood and work in El Segundo.
I also want to add the 23711 Ladrillo only added 1bedroom and 1/2 bath and purchased for $821k non rehab. The 22410 Hatteras was already a 4/2 and purchased for $637k non rehab.
If you're adding a 1 bedroom and 1 bathroom and making the kitchen larger, you're significantly increasing your rehab cost. At your $835k purchase price, you're numbers are really tight.
@Dennis Canon HML was 85% of purchase price. Rehab is with our own money. In terms of drawings, have you ever tried doing those yourself? I measured and created my own as-builts for temporary reference until a drafter can come in and do more professional ones. I've been adjusting the floor plan to see what works best, but I'm wondering if I can use the ones I create for submitting to the city for permits.
These numbers are ridiculously tight. I’m following to see how it works out - I hope it works well. But a potential 4K profit? If I thought there was a chance for a 4K profit, I might (might) risk 30 grand, and that’s if I had nothing better to do for a couple weeks and had everything lined up perfectly.
Congrats on your first deal. Best wishes with it.
@Gregory Storm Good luck! And nice work on taking action. I'd love to see more pics as the flip moves on in the process.
Way to take action Gregory. Looking forward to the updates along the way.
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