First time flipper, hoping to get some advice

4 Replies

Good morning-

This is a great site. I have been trolling around here for a while and have already picked up on many nuggets.

I am hoping to get some advice on my first two projects that I have going on right now.

My background:

I am a Real Estate broker and run and operate a Loss mitigation company. We have specialized now for over 7 years in Loan Modifications and Short Sale negotiations. We have been very fortunate to be 100% referral only and we have always done right by our clients. I have a huge data base of people transitioning from modification to Short Sale. In the past I would offer these properties to my investors. I got kind of tired watching these guys making so much money off of my supply so I decided to dabble.

I cherry picked what I thought were no brainers. Both were obviously short sales that I bought with cash.

  1. $100k for a 2bd /ba condo that needed about $25k in rehab. Purchase 10/30/2013 should be back on market 12/15/2013. Comps show possible sale of $220k
  2. $220k for a SFR 3bd . 3ba that needed only $15k in rehab purchased same day 10/30/2013 and is going on market today. Comps show possible sale of $320k.

I brought in a contractor friend of mine who I can trust to run the projects and he earns 20% in sweat equity by doing a lot of the work himself. He also works for a marble company where he is able to get a lot of material for countertops, floors and other for less than wholesale.

I have not done any of the work however I have paid 100% of all costs.

The questions that are coming up now are:

  1. Do I stage the properties when we are going to sell?
  2. has anyone had a relationship like this with a contractor? sometimes I feel like I am giving up to much.
  3. How do you know when to splurge on items vs when to go cheap.
  4. Although I am licensed as a Realtor, I am using a Realtor friend of mine to sell the propties for 1% vs 3%. My reasoning behind this is that I don't have the marketing ability or the time (with my other company) to spend. I know that I am giving up money.
  5. There is obviously HOA and other carrying cost, how long do you list before you sign a temporary lease?

@Clint Worland

Sounds like you are off to a fast start. I'll give you my quick and dirty opinions on these. Keep in mind I'm a fairly new investor so take my advice with a grain of salt.

1)Yes Yes Yes. I'm a big fan of staging homes. It's been statistically proven that staged homes sell faster and for more money.

2)If you trust your contractor this sounds like a great deal. It's a good way to keep him invested in the project to do his absolute best work. I'd do an analysis of whether it would cost more to just pay him upfront as opposed to the equity stake but if you have that extra piece of mind and feel he is awesome at managing jobs and you can spend your time elsewhere then I don't see why this isn't a good agreement.

3)Check out your comps. If you are trying to get 300k for a property and the 300k comps have granite and stainless steel apps and hardwoods, then you need to have those same things if not a little more.

4) I love your deal with your realtor buddy. 1% is a steal if you ask me. You save 2% and you don't have to spend your time marketing the property. This is all assuming he is good at his job of course.

5) I can't speak to this.

I will take a stab at the questions as well, but I think Jacob did a good job with his feedback.

1) This is personal preference and we have not staged properties up to this point, but I do think there is definite value in staging and it is something we are looking at doing on future rehab projects. Staging does allow you to influence buyers as to the usefulness and practicality of a space that might come into question without staging.

2) There are so many types of relationships and payment agreements with is a matter of finding what works best for both you and the contractor and makes you money. Are you saying he earns 20% of profits? This does help align his goals with yours.

3) As Jacob said, listen to the comps. Find out what people are paying for similar properties and why. Typically, kitchens and bathrooms will give you the best return, but each market is different, so some background work is required.

4) If you do not have the time to list the properties, why not use the friend for a discount, but as Jacob said, that is assuming he is good. If he takes forever to sell your properties it might be worth paying the 3% for a top-notch skilled do you think he is?

5) I buy rehab properties to rehab and rental properties to rent, and have not had a situation where I could not sell a property and decided to lease. You always need to know what your exit strategy is (and of course plan b)...I would significantly lower the price on a rehab to sell it before I would lease it out, but that is just me. There is no right answer on this.

@James Vermillion

Thanks to both of you for the quick reply. Its great to have support like this especially when I have no one else to mentor me.

I did not plan on both of these properties (my first two ever) closing on the same day which doubled my stress, but I am hoping it doubles my profits as well.

Regarding my realtor friend, she is great and she is only doing this as favor as I give her a ton of business through my other company.

@Jacob A. undefined

What can I expect to pay for the staging?

@Clint Worland

Staging costs can vary widely depening on square footage of the home and the number of rooms you choose to stage. I only chose to stage the living area, kitchen, dining room and master bed/bath and it cost me around $1,000 for a 1600 sq ft home. I'm sure in San Diego staging costs will be a little bit more inflated as opposed to NC.

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