Flipping homes in a foreclosure heavy neighbrohood?

5 Replies

Someone recently brought me a property that they thought would be a good candidate for a flip. Purchase cost of 27k rehab of 35k Arv of........? 

The trick I was finding with this property is there were foreclosures going for 50k. There was also a rehab or two going for around 100k. Even averaging them out the home looks like it would go for around 75k. Do you guys just choose to avoid properties like this? Do you not count foreclosures in your comps? Seems like this is a great way to lose money. But I'm also very cautious on what I think is a deal/is not.

REO's usually need a lot of work so they are not good comparables for fixed up homes. The comparables you should use are the home owner and investor sales. That being said, if there are a lot of foreclosures and not very many normal sales in that neighborhood, it tells you something. In all likelihood, you don't have a very active homeowner market there. These areas are usually best for buy and hold of wholesaling. I wouldn't average them out to find the ARV, but I would definitely price your's conservatively as compared to the other fixed up homes and if you are going to flip it, plan on it taking longer than normal.

perhaps you could rehab and rent it out until the market turns and is more favorable for a sale

as a flipper you have to count all homes as comps If you buy for $27k and rehab for $35k it does not leave much room on a $75k average You have approx $5000 in selling costs leaving a margin of $8000 not including your holding costs.But if the pace of sales is eating up those foreclosures then you might want to buy for a six month turnaround Would that make a good turn-key investment for those out of state? 

Sounds like a good rental opportunity. If you're looking to flip in a neighborhood such as this then I would try to purchase for around 20K. If not then keep looking around in the neighborhood for other forclosures for a house with an ARV around 100,000

Thanks guys for the thoughts. It's not a particularly lovely area. We decided to pass. The property was a total guy and would have taken 3-4 months to rehab. While the market in general is on an uptick this particular area doesn't really appreciate. The rent wouldn't be a high enough return for me to hold or/sell it as a rental. 

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here