Criteria in looking for property to flip

[Cody Mitchell]

My wife and I recently completed two BRRRR deals, and have some capital from the cash out refinance. We would like to get some more capital in order to scale more quickly and know a few good wholesalers, so we were thinking about doing a flip. I'm working on developing our critera for what we are looking for, and I was just curious what are some criteria that would should consider for finding properties to flip? I know typically flippers have a target ARV they like, and that they want to be in all typically at about 70% of the ARV, is there anything else I'm missing?

Thanks in advance!

[Evan Polaski]

@Cody Mitchell, from my point of view, you are have already done two flips. A BRRRR is just a flip that you don't sell.

I always work backwards with my numbers, starting with my profit.  I don't really look at percentages, but rather what is my time worth.  I want to feel fairly confident I will make $50k on every deal, since I am not too unhappy dealing with 6 months of part time headaches for $50k.  This also builds in a fair buffer if something unforeseen arises (i.e. a $20k collapsed sewer line replacement).  Percentages do matter because I will not invest $1mm to make $50k, but I will be all in $250k to make $50k, and more importantly, I won't take on a $150k rehab to only make $30k...

Then I look at ARVs and rehab cost/holding cost, to get to a purchase price.  This is all likely fairly straight forward already for you.

The piece that still surprises me is how much it costs to sell. I know the commissions, but post inspection fixes, the transfer taxes, etc. I know in most markets today, buyers aren't asking for closing cost assistance, but you should know if that is common in your market. If you accept an FHA offer, who is paying for the second appraisal (my advice, don't accept an FHA offer).

[Eliott Elias]

Get in an area you know is going to sell. You can buy dirt cheap, but have trouble selling. If it’s easy on the front end, it’s hard on the back end. Vise versa 

[Will Barnard]

I like Evan’s post above, good advice. I would add that you should avoid any properties with major uncorrectable deficiencies which will reduce your buyers pool thereby reducing profits. Examples are next to commercial, on major streets or near freeways with traffic noise and smog, no garage (unless the entire area has many homes common without them), near railroad tracks, in airport flight paths, too many stairs to climb to front door, etc.

The level of rehab should be factored in too. If the rehab is heavy, your hold time will be longer so make sure to account for that. Also pay close attention to the surrounding homes. Is the subject property sitting next to another dumpy looking house? Since you can’t fix that one too, proceed with caution as most buyers will not want to buy a nice home sitting right next to or across the street from these dumpy homes. Of course not all markets are created equal so take that into consideration regarding my advice.

Knowing your market conditions and trends is also of vital importance. Since you have already done 2 brrrr homes, you probably know this already, but since you have not sold them, you have not actually completed a flip, just a remodel and the sale piece is an important step in the process. Miscalculate and pay the piper.

I look for the ugliest most outdated home in a nice area with other nice homes on the street. These tend to be the very best in profitability as they typically sell fast if you did the job right. Depending on your location and market conditions, buying the smallest home (perhaps a 2 bed 1 bath) and adding on can also be highly profitable so long as the cost to build the addition is well below the cost per sf you get at resale.

[Cody Mitchell]

Quote from @Evan Polaski:

@Cody Mitchell, from my point of view, you are have already done two flips. A BRRRR is just a flip that you don't sell.

I always work backwards with my numbers, starting with my profit.  I don't really look at percentages, but rather what is my time worth.  I want to feel fairly confident I will make $50k on every deal, since I am not too unhappy dealing with 6 months of part time headaches for $50k.  This also builds in a fair buffer if something unforeseen arises (i.e. a $20k collapsed sewer line replacement).  Percentages do matter because I will not invest $1mm to make $50k, but I will be all in $250k to make $50k, and more importantly, I won't take on a $150k rehab to only make $30k...

Then I look at ARVs and rehab cost/holding cost, to get to a purchase price.  This is all likely fairly straight forward already for you.

The piece that still surprises me is how much it costs to sell. I know the commissions, but post inspection fixes, the transfer taxes, etc. I know in most markets today, buyers aren't asking for closing cost assistance, but you should know if that is common in your market. If you accept an FHA offer, who is paying for the second appraisal (my advice, don't accept an FHA offer).

 That's awesome advice! I really appreciate it. This will help me build my criteria immensely

[Cody Mitchell]

Quote from @Eliott Elias:

Get in an area you know is going to sell. You can buy dirt cheap, but have trouble selling. If it’s easy on the front end, it’s hard on the back end. Vise versa 

 Good tip! Thank you

[Cody Mitchell]

Quote from @Will Barnard:

I like Evan’s post above, good advice. I would add that you should avoid any properties with major uncorrectable deficiencies which will reduce your buyers pool thereby reducing profits. Examples are next to commercial, on major streets or near freeways with traffic noise and smog, no garage (unless the entire area has many homes common without them), near railroad tracks, in airport flight paths, too many stairs to climb to front door, etc.

The level of rehab should be factored in too. If the rehab is heavy, your hold time will be longer so make sure to account for that. Also pay close attention to the surrounding homes. Is the subject property sitting next to another dumpy looking house? Since you can’t fix that one too, proceed with caution as most buyers will not want to buy a nice home sitting right next to or across the street from these dumpy homes. Of course not all markets are created equal so take that into consideration regarding my advice.

Knowing your market conditions and trends is also of vital importance. Since you have already done 2 brrrr homes, you probably know this already, but since you have not sold them, you have not actually completed a flip, just a remodel and the sale piece is an important step in the process. Miscalculate and pay the piper.

I look for the ugliest most outdated home in a nice area with other nice homes on the street. These tend to be the very best in profitability as they typically sell fast if you did the job right. Depending on your location and market conditions, buying the smallest home (perhaps a 2 bed 1 bath) and adding on can also be highly profitable so long as the cost to build the addition is well below the cost per sf you get at resale.

 That is really good advice! Factoring in a longer holding time for larger rehab's is definitely something I need to keep in mind. Also definitely need to pay attention to the neighborhood. I appreciate you taking your time and helping me here.