What to look for in a flip deal

Question

Curious about what you look for in a property to make an offer.

Minimum amount of profit after all costs?

ARV percentages?

SFH, Duplex?

How many sources do you pull leads from?

Nick C. · Answer

Brent is spot on. Also his profile pic looks like Tom’s from MySpace so if I could vote twice I would.

Steven Foster Wilson · Answer

Just 1 rule I use! *Find an under market Value property! My most recent flip I put almost no work into, however since I bought it so low I was able to sell it for $60k higher then what I bought it for. I believe some people call this wholetaling. The flip that you can sell without actually touching it is the best!

Brent Sweet · Answer

I look at comps first to see if there is even any way to make it work.  I then work backwards from there.  If it's a wholesaler I try to do at least a drive by and try to guess as much as possible what needs to be done.  I always err on the side of let it surprise me that it doesn't need that.  Like one deal I just looked at and didn't do I figured flooring throughout but it actually had pretty good wood floors that could be saved without all new flooring.  Then I try to navigate how negotiable the seller is.  Typically through a realtor they are trying to get right about what it appraises for now and there is rarely any margin there PLUS you never know the unknowns.  I don't have a specific number though.  I mean I'm going to make it worth my time but if I worked it out and could get 10k in 30 days and it's the only lead I have had in a bit then I'd do the deal.  As long as it isn't tying up resources that prevent me from a 60k deal.

Carlton B. · Answer

The 7% rule is a good starting point, but we have some other rules

It should be finished in 3 months

10k a month so 30k before taxes minimum

Leads are from every source I can get my hands on, but the best leads come by way of networking, MLS ,and then wholesalers.

Eliott Elias · Answer

I use the 70% rule. ARV*.7-repairs.

Mike Klarman · Answer

There's great flips out there where I am right now.  Finding deals with a 150k spread on the daily.  I know other markets you're stoked to make 30k - 50k in 4 - 6 months but my clients are exiting 2x that amount and these properties in my network are the type that offer back 100% of the invested capital upon refi, the spreads are that good.

So, how do we find them?

1) I have a team of: an experienced agent who knows all the neighborhoods of the city and I have a mid level contractor who has rehabbed 200+ houses in the last 5 years.

2) You have to understand the development of the city/town you are in.  In Philly, development is pushing North and North-West hard.  So we stay on the brink of the development or go to the neighboring section of the development because it will be there next.  In these emerging neighborhoods are lots of antiquated houses and going up around these houses are new construction, rehabs, and high rise condos.  So, there will be big price listings all around our targeted house.  This is why we are picking up stuff for 125k - 150k and when done we are selling for 400k on low end and 500k on high end.  My contractor is a rock star and does great work and works fast.

Carlton B. · Answer

Depends on the financing if its a commercial bank loan then maybe but they understand its a flip and they are looking at the ARV more then any issues or how you are making the profit. Hard money lenders tend to be even more likely to over look issues and focus on ARV and comps.

Ian Walsh · Answer

Most good deals I see are about 30-35% of the ARV for the purchase price.

Scott E. · Answer

Interesting... and now that I re-read my response I realize I should have clarified that I was speaking to my experience in my sub market (Scottsdale area). The average price for a home around here that requires a gut renovation is ~$550,000.

If the average home price in your area is a lot less, and homes around there generally require less work, then I could see the average flip profit being less.

Some additional perspective - Not sharing this to sound arrogant, only sharing for fun. I have a couple of local mentors who are luxury spec builders in Paradise Valley and Silverleaf. They generally don't pursue a deal unless there is a minimum $1,000,000 of upside. Granted those projects are ground up construction, they require significant lot prep (often hillside lots), and they take around 24 months to complete.

Brian Bisdorf · Answer

Do you run into appraisal issues with MLS? How do you justify the large mark up on cosmetic items to the real cool appraiser?

What to look for in a flip deal

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