flip rehabs/returns - how do i compete?

Member since 2020 · 68 posts · 30 votes

i am having trouble competing with other flippers. i try to do things the right way (pull permits) & use contractors/hvac/plumbing/electricians who, i feel, give me the best bang for the buck. and we all know the cost of things, and labor, have risen dramatically lately.

i pay cash for my homes and hit the sales price i anticipated beforehand.

the problem i am having is getting my rehab numbers in line. i feel other investors are doing rentals or doing some/all the work themselves and/or not pulling permits.

i should also mention, i do not need to flip. i can live off the returns i get in my bond/stock portfolio (w/ a lot less taxes paid). however, i like to flip 1x/year to keep me from getting bored and get that satisfaction from "working" (i retired 4 years ago).

and no, i am not interested in doing rentals. :)

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Andy SabischPro Member

Investor · Jackson, MS · Member since 2021 · 660 posts · 561 votes

What permits are required depends on your specific location - some areas are more lenient than others. With that said, yes, flippers can and do a lot of the work themselves to save costs but that all comes with a potential downside. If a permit is required and was not pulled, you can be red tagged and then you will have an inspector on your back until the project is done and likely on future projects. Another downside if if you sell the house and permits were not pulled and there is an issue with one of the systems that required one, you as the flipper can be legally liable for having done the work uninsured and without a permit. I find it a lot easier and less stressful to get a licensed trades person to pull a permit for jobs where it is required than cut costs and not. I have had trades people quote me two prices - one with permits and one without. I tend to find another person to do the work. I understand that in many cases the local inspector knows far less than the person that did the work but at least it was permitted and inspected.

If your numbers are coming in where you want them and the profit is there, I would not worry about the corners other flippers are cutting as it sounds like you are doing it the right way.

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Ke Nan Wang
Developer · St. Augustine, FL · Member since 2018 · 311 posts · 384 votes
3y
You can’t. If you are in the commodity market, you compete on price. So lower your cost is the game so you can offer lower price, wether that’s buy the property cheaper than your competitors or spend less on Reno than your competitor. When the market has more buyers than sellers, you can flip easily and not feel the competition. But as any market, if the money is there and entry is low, people will jump in and increase supply and saturate the market and make it competitive and now it’s a race to the bottom.
If you are in the commodity game, meaning most of your price is dictated by price per sq ft, either find and negotiate a better deal upfront or find cheaper labor force/material to do the project.
Your alternative strategy would be get out of the commodity game and build your brand with quality service and design aesthetics. Flip high end houses. This way is much much more difficult and higher risk but it allow you to be the only one in your market and if people want your product, you can charge a price that would yield a healthy profit for you to do things the right way.
That would be the strategy.
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Ronald Ty
OP
Member since 2020 · 68 posts · 30 votes
3y
Here are some of my flip returns. For comparative sake, I just took out the interest to make it easier (ie, I used a heloc on some but then you pay more in taxes on the flip profit): 19%, -9, 5, 6, 9, 17, 19 (rental sold as is $300 rehab...yes, $300), 32% (rental with a 68k rehab).
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Gary L Wallman
Rental Property Investor · Beavercreek OH · Member since 2018 · 422 posts · 970 votes
3y
Quote from @Ronald Ty:

Quote from @Gary L Wallman:

Quote from @Ronald Ty:

Quote from @Gary L Wallman:

Quote from @Ronald Ty:

Quote from @Gary L Wallman:

Quote from @Ronald Ty:

i am having trouble competing with other flippers. i try to do things the right way (pull permits) & use contractors/hvac/plumbing/electricians who, i feel, give me the best bang for the buck. and we all know the cost of things, and labor, have risen dramatically lately.

i pay cash for my homes and hit the sales price i anticipated beforehand.

the problem i am having is getting my rehab numbers in line. i feel other investors are doing rentals or doing some/all the work themselves and/or not pulling permits.

i should also mention, i do not need to flip. i can live off the returns i get in my bond/stock portfolio (w/ a lot less taxes paid). however, i like to flip 1x/year to keep me from getting bored and get that satisfaction from "working" (i retired 4 years ago).

and no, i am not interested in doing rentals. :)

Scott,

These from the ground up flips, particularly with structural changes, are what nightmares are made of. Especially true if your using contractors who likes to charge the way yours do. I have done many higher end finishes in flips and your numbers shock me. Not to say your wrong, inflation in building materials has been crazy.

After doing dozens of flips, I now avoid any of these rebuild from the ground up stuff. If I can't make it appealing by kitchen, bath, paint, flooring and some fancy lighting, I don't do it. Too expensive and way too risky for the dollars expended, to the return.

I've also learned most buyers look at fit and finish more than the houses bones.

Gary

Thanks for the feedback. Agree to disagree. Dont feel I'm being ripped off. And creating value raises the arv. Spend $ to make $. I have done very few cosmetic flips. I haven't really ever gotten crazy returns. It's better just to put it in a stock mutual fund Roth Ira and call it a day. Everybody thinks it's easy. I'm here to tell the newbs it is not. Again, this is for educational purposes.

Not disagreeing with your idea that it takes money to make money. Just disagreeing with your rate of return, which, I believe you were concerned about in your post. I've learned, after being in the flip business and the car business, I can't compete with the car manufacturer or the Real Estate developer. If I have to rebuild a car or a house, it's usually a loser for me. Real money is made by making an ugly house look pretty, not leveling garage floors. IMHO.

Respectfully,

Gary

Thanks, Gary. Just curious, what kind of return do you get on your flips assuming if you would be paying cash for instance ?

Scott,

I never use borrowed money. I'm in the Midwest so returns aren't spectacular. I used to shoot for between 25 and 40 percent cash on cash return in 3 to 4 months. The amount of work it took made me into a buy and hold guy.

Now own 150+ LTR doors.

Gary

I don't get it. How is a 25-40% return not spectacular ? Especially in 4 months? Compounded (if you do 3 a year), that was/is 75-120%!

Cheap houses in SW Ohio. Bigger percentage but smaller dollars.
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Ronald Ty
OP
Member since 2020 · 68 posts · 30 votes
3y
It's no one's fault but my own I went 25k over budget. That being said, a flipper increases the value by redesigning.
Open concept, a 2nd faucet in the master suite, widen and deepen a master shower & would you want a washer/dryer in your kitchen? Ac is on its last leg so replace it with a new one. Put in a 6 foot wood fence.
No more galvanized water pipes and cast iron drains.
at this point, just trying to get a 5% return. Without all this, I'd probably lose my a$$.
and sorry but a 450k priced home needs special amenities.
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Jay ThomasPro Member
Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
3y
No matter where you're flipping real estate, obtaining the necessary permits is a critical part of any project. Without them, you can face fines or even be held legally liable for any issues that arise down the line. That said, DIYers often take on projects themselves to save costs--something that can backfire if permits weren't pulled in the first place. In this case, not only will you have an inspector breathing down your neck until the job's done, but you could also be opened up to legal repercussions if any one of those systems require a permit and none was obtained. It pays to do your homework! Make sure all required permits are in hand before starting any project. It may cost more upfront, but it will save you money and hassle in the long run.
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Steven Foster Wilson
Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes
3y
Quote from @Ronald Ty:

i am having trouble competing with other flippers. i try to do things the right way (pull permits) & use contractors/hvac/plumbing/electricians who, i feel, give me the best bang for the buck. and we all know the cost of things, and labor, have risen dramatically lately.

i pay cash for my homes and hit the sales price i anticipated beforehand.

the problem i am having is getting my rehab numbers in line. i feel other investors are doing rentals or doing some/all the work themselves and/or not pulling permits.

i should also mention, i do not need to flip. i can live off the returns i get in my bond/stock portfolio (w/ a lot less taxes paid). however, i like to flip 1x/year to keep me from getting bored and get that satisfaction from "working" (i retired 4 years ago).

and no, i am not interested in doing rentals. :)

You need to find yourself a deal finder. A local agent who knows flips, cold calls, and networks with wholesalers. I just bought my 2nd flip this month, both off market, little competition and I get to name the price. If I had tried to buy these deals on market, I would have been outbid very quickly. Not sure how the Illinois market is, but Ohio is pretty crazy like that.
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Ronald Ty
OP
Member since 2020 · 68 posts · 30 votes
3y
Yeah, even sheriff sales are crazy high
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Jonathan KlemmBusiness Member
Moderator
Contractor · Chicago, IL · Member since 2016 · 4k+ posts · 2k+ votes
3y
Hey @Ronald Ty - I think it's awesome and admirable to do business the way you are doing it.
There is no doubt that some flippers are cutting corners with materials, labor, and not pulling permits. I'd advise you to not let that discourage you but use it as leverage and talking points when you are negotiating with sellers.
Even though we are still actively buying here in Chicago, we just try to stay super tight with our numbers and know that we won't get most of the deals that we used to a couple of years ago.
What part of Illinois are you flipping?
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Ronald Ty
OP
Member since 2020 · 68 posts · 30 votes
3y
Arlington hts
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Aram Jawad
Realtor · Columbus, OH · Member since 2023 · 8 posts · 25 votes
3y
Hey Scott, flipping houses is probably one of my favorite strategies in real estate. I understand the frustration when it comes to competing with other flippers when trying to submit an offer on a property. The world we live in is moving much faster. Correct me if I'm wrong, what it sound like is you have personal relationships with sub contractors (contractors, HVAC techs, plumbers, electricians). If that is the case, seems like a lot of moving pieces to get an accurate rehab numbers and could be what is slowing you down. The investors I have worked with, here is Columbus, OH, have found alot of success with building great relationships with general contractors where you are outsourcing someone to have the sub contractor relationships. You will be able to get your rehab quotes in line much quicker (24 hour or less turn around) so you are able to submit a competitive yet comfortable offer that works for you. As far as permits go, I agree with you. Some people aren't pulling permits, but that is when you start to seeing "lipstick on a pig" finishes or things weren't done properly causing issues for the homeowner later on. I would recommend to continue pulling permits, you don't want to find yourself in a situation where you are flagged by the city and a stop work order is placed on the property.
All and all, I would recommend building relationships with general contractors to save you time by having them come out to the property with you when submitting an offer on the home. Happy Hunting.
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Ronald Ty
OP
Member since 2020 · 68 posts · 30 votes
3y
hi! The thing is, a Gc is gonna mark up the price. Dealing with the subs is ideal. Also, I can control the controllable (filling out permits, meeting the inspectors, finding the subs etc). There has been about a 3 month delay. The reasons are too long to list. But I've found when I try to replace a normal sub/electrician etc either they are too high, do a bad job, or never show up for the quote or even bother to call me back.
Whenever I try a new sub, I get nervous. Most of them suck lol.
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R Holder
Member since 2019 · 1 post · 0 votes
3y
Scott Williamson
Hi Scott. Kinda sounds like you're, as the old saying goes, "You're crying with a loaf of bread under your arm"
Do the rehab correctly (always a good idea), then do the following:
(1) Refinance at the ARV. No taxes to pay.
(2) Sell "Seller Finansed". Lower taxes to pay than flipping.
(3) Repeat
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Remington LymanBusiness Member
Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
3y
Quote from @Ronald Ty:

i am having trouble competing with other flippers. i try to do things the right way (pull permits) & use contractors/hvac/plumbing/electricians who, i feel, give me the best bang for the buck. and we all know the cost of things, and labor, have risen dramatically lately.

i pay cash for my homes and hit the sales price i anticipated beforehand.

the problem i am having is getting my rehab numbers in line. i feel other investors are doing rentals or doing some/all the work themselves and/or not pulling permits.

i should also mention, i do not need to flip. i can live off the returns i get in my bond/stock portfolio (w/ a lot less taxes paid). however, i like to flip 1x/year to keep me from getting bored and get that satisfaction from "working" (i retired 4 years ago).

and no, i am not interested in doing rentals. :)

Most flippers and investors I know only pull permits when they need to hide from the city. Even then most of the time they just chance it and do not pull any. The permitting process takes a long time and is expensive. In order for cities to see real growth they need to deregulate and simplify the permitting process.
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Jonathan R McLaughlin
Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
3y
Quote from @Ronald Ty:

Quote from @Jaron Walling:

@Ronald Ty If you have drawings that's a level of rehab outside of my wheel house. Unless the market and comps command that level of detail I'd be cutting material costs. Probably can't do much about the labor... other than the carpenter.

Hi. Those weren't drawings. Just a kitchen layout pretty typical of any cabinet company. Have the rep come out, measure, and use his software. I've always done this. This is the 1st time I have ever done architectural/structural engineer drawings for taking out a wall though. But that was just for the wall & I have to per the village & even if I didn't do permits, I'd still hire an engineer.
this is only a 1 floor 1600 ranch home. I'm competing with basements & split levels but there is a comp that sold for 450 last year with a 2 car garage. So I'm just matching it with open concept, 2nd faucet etc. :)
So first time doing a higher level of rehab and you went over on your rehab estimates by about 20%. Assuming you build in some kind of contingency at 5-10% you didn't miss your target by much. And if your 450K projections are right you walk away with 20-25K before taxes. Sounds like you were targeting 50K? Not too bad a miss and you know more than you did. Sounds like you did a thorough job too.
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Ronald Ty
OP
Member since 2020 · 68 posts · 30 votes
3y
Actually, this is not my 1st rodeo with a higher end rehab. Done 9 in the last 10 years or so & none of them were low level.. my rehab budgets have been abou 50, 70, 60, 30, 110, 80, 90, 80, 80 off the top of my head. Most were ranches (900sq feet, one at 1200 and now 1600, one 1200 on a slab and the 50k one was a 2 level on a slab) on a 3 foot crawlspace. Most of the 900 sq feet had 1.0 baths.
With the high self employment taxes, I would advise those to just do your Roth 401k at work. Greatest chance of suce3s to become a millionaire if you start at 22 years old & invest in stock index mutual funds.
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Carlos Ptriawan
Member since 2019 · 7k+ posts · 4k+ votes
3y
Quote from @Ronald Ty:

hi! The thing is, a Gc is gonna mark up the price. Dealing with the subs is ideal. Also, I can control the controllable (filling out permits, meeting the inspectors, finding the subs etc). There has been about a 3 month delay. The reasons are too long to list. But I've found when I try to replace a normal sub/electrician etc either they are too high, do a bad job, or never show up for the quote or even bother to call me back.
Whenever I try a new sub, I get nervous. Most of them suck lol.
It could also be the other way around.
At the end of the day , if you talk to ten different specialist rather than one contractor, it would take up your time and money, my life was very easy these days because the contractor would do everything to me (by bringing up their trusted specialist) and I would just make payment to one guy. Even to the point I can make special zero financing program with my contractor. Once trust relationship is there you could build anything, a difference of $2k-$3k wouldn't make much difference.
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Jay ThomasPro Member
Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes
3y
Flipping real estate can be a great way to make money, however, it's important to remember that permits may be required for certain jobs and should not be overlooked. Depending on your location, you could find yourself in hot water if any of the work you have done requires a permit but one wasn't pulled. Not only would this incur inspection fees and possible fines if caught, but it could also leave you legally liable should any issues arise with that system in the future. Make sure to do your research before getting started and save yourself from potential penalties down the line!
[email protected]832-889-5607
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Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
3y
OK first of all permits have nothing to do with returns. Second you do not seem very motivated at all. You can love off of your returns in the stock market. So why bother with added stress?
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Evan Polaski
Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
3y
@Ronald Ty, I find the hardest part of flipping these days is the contractors. I am similar to you in that I do about 1 flip per year, on average. Not enough to keep a crew fully employed. I have a friend that typically has about 10 flips/new construction going at once. He has a full handle of his costs, and for a similar gut level rehab, he is coming in about half the overall cost, since he "owns" his crews. I pay retail for an HVAC guy, drywaller, paint crew, etc, because the next time I will need them is likely next year.
But overall, being a part time flipper today, is hard. If you don't own your own crews, then the only way I can see being successful is by creating something truly unique. I think the days of white shaker cabinets, grey walls, and grey-wash LVP flooring is gone. Buyers don't want that, or at least won't pay a premium for it, to help overcome the uncontrollable expenses it seems you are experiencing.
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Ronald Ty
OP
Member since 2020 · 68 posts · 30 votes
3y
Quote from @Bob S.:

OK first of all permits have nothing to do with returns. Second you do not seem very motivated at all. You can love off of your returns in the stock market. So why bother with added stress?
Permits do have to with $ returns. It was $1200 in permit fees plus they bring it up to code. But granted, does it affect 1%? Prolly not. Good point.
You make another excellent point & obviously have a lot of common sense (that's a good compliment not being cynical). It's also something I have asked myself many times. It's cuz (as mentioned above), I get bored. This is only a very small single % of my net worth if I do 1 a year.

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Ronald Ty
OP
Member since 2020 · 68 posts · 30 votes
3y
Quote from @Evan Polaski:

@Ronald Ty, I find the hardest part of flipping these days is the contractors. I am similar to you in that I do about 1 flip per year, on average. Not enough to keep a crew fully employed. I have a friend that typically has about 10 flips/new construction going at once. He has a full handle of his costs, and for a similar gut level rehab, he is coming in about half the overall cost, since he "owns" his crews. I pay retail for an HVAC guy, drywaller, paint crew, etc, because the next time I will need them is likely next year.
But overall, being a part time flipper today, is hard. If you don't own your own crews, then the only way I can see being successful is by creating something truly unique. I think the days of white shaker cabinets, grey walls, and grey-wash LVP flooring is gone. Buyers don't want that, or at least won't pay a premium for it, to help overcome the uncontrollable expenses it seems you are experiencing.
Here is the thing I am discovering more and more. I went to a sheriff home auction sale today. I know several of these heavy hitters do some/most of the work themselves. I sat next to awoman today. She does 1 at a time with her husband (no partner) & she told me they do most of the work themselves and the other trades they have are relatives so sure they get a discount. They also lived in a home for a year b4 selling it. She bidded on a property today and it went up another 35k from what her max was
Wow! And she pays cash.

I also spoke to another guy. He subs out the work and does cosmetic. Averages a 10% returns flipping so 8.5% with SE taxes? I can get 10% historical retun (500 index fund) with MUCH less in taxes paid. I asked where he parks his cash for these deals as they are due in 24 hours. He keeps It in a checking account earning very little interest. It stays there til he wins a deal. He did win today.
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Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
3y
Like I said permits mean nothing to your bottom line. In my opinion this post reads like a Facebook post. Good luck to you
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Branden Jordan
Investor · Member since 2020 · 67 posts · 28 votes
3y
Quote from @Matthew Paul:

Quote from @Branden Jordan:

Quote from @Matthew Paul:

A good friend flips houses , he does the bare minimum to make the house move in condition . He sells in B areas . He uses builder grade , makes the house affordable and does it fast . His belief is let the new owner customize to their taste . His houses sell based on location , and they sell quick . He sells FSBO and makes a great return .

How do you determine "B areas?" Is there a specific resource or platform you go to for this grade of any property?

Good schools , higher priced homes ,, low crime .
That is very very vague. What are "better schools", "higher priced" and "low crime?" I am looking for a gauge for consistency.
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Bob S.
Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes
3y
Quote from @Branden Jordan:

Quote from @Matthew Paul:

Quote from @Branden Jordan:

Quote from @Matthew Paul:

A good friend flips houses , he does the bare minimum to make the house move in condition . He sells in B areas . He uses builder grade , makes the house affordable and does it fast . His belief is let the new owner customize to their taste . His houses sell based on location , and they sell quick . He sells FSBO and makes a great return .

How do you determine "B areas?" Is there a specific resource or platform you go to for this grade of any property?

Good schools , higher priced homes ,, low crime .

That is very very vague. What are "better schools", "higher priced" and "low crime?" I am looking for a gauge for consistency.

Everyone uses the ABCD area gauge, IMO its totally ridiculous. Rentals are a tool to make money, end of story. Its NOT location location location, ( to a point) ITS PRICE PRICE PRICE. I have had properties in A areas and D, they all rent, iF you buy right all will work out. Even flips, properties sell everywhere, again just buy right,
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Matthew Paul
Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
3y
Quote from @Branden Jordan:

Quote from @Matthew Paul:

Quote from @Branden Jordan:

Quote from @Matthew Paul:

A good friend flips houses , he does the bare minimum to make the house move in condition . He sells in B areas . He uses builder grade , makes the house affordable and does it fast . His belief is let the new owner customize to their taste . His houses sell based on location , and they sell quick . He sells FSBO and makes a great return .

How do you determine "B areas?" Is there a specific resource or platform you go to for this grade of any property?

Good schools , higher priced homes ,, low crime .

That is very very vague. What are "better schools", "higher priced" and "low crime?" I am looking for a gauge for consistency.

You have to know the area
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