What Condition Do You Look For?

Question

I am in the initial stage of finding my first rehab. I'm focusing my search on the MLS for the time being since I am taking it slow and trying to learn the ins and outs of my area. My goal this year is to flip 1 house and make a profit as a proof of concept.

Obviously the rehab business is based on taking houses that need some sort of work, cosmetic, structural or both, and making them desirable to buyers. That being said, most of the prospects I see are simply older homes that have not been updated for a long time, they typically have things like wood paneling, pink tile in the bathrooms and wallpaper. In general they are livable but just ugly and need paint, new bathrooms and probably a kitchen update. Are these the types of homes most are flipping, or are you looking for the really trashed out places that need a total gut and rebuild?

I realize anything can make money as long as the purchase price is right, but are these older out of date homes even worth looking at? I.e. is being out of date generally a big enough turn off to your average home buyer that a wholesale buyer like myself can get a good deal with the intent to rehab it?

Tom

Dave Savage · Answer

I agree with @Chris Adams .  Find a good agent who is willing to make lots of offers for you and be prepared to get a lot of rejections, but you should find enough deals to keep the cash flowing for both you and your agent.

"You aren't going to find a deal if you aren't making offers"

Chris Adams · Answer

@Tom  Scott  In that case you can follow something like the 70% rule and tweak it for your market & financing options. I would make multiple offers expecting to get countered or denied often. But when you do get your offer accepted you should be in position to make some money.

Tom Scott · Answer

Hey guys, thanks for the feedback. To address Chris's question, I've been involved with many different type of construction so I'd be confident in my ability to build a house by myself, so biting off more than I can chew is really a non issue. I'm fine buying just about anything as long as the margins work.

My main concern is if I am wasting time looking at homes that are in good mechanical shape, but are a few decades out of date. The few posts above would suggest that until they have been on market for 90+ days the discount won't be enough to make the margin work.

Tom

Chris Adams · Answer

What I look for is fairly irrelevant since I'm a professional GC with 20 years construction experience.

Ask yourself what you feel comfortable with, without biting off too much for your level of expertise and your funding. Then find that property crunch the numbers and make it happen.

J. Martin · Answer

I agree with Dave. I don't think you're going to get much of a discount on something that just needs updating, unless you get it off the MLS.

You need to find someone who is very motivated to sell (I assume you can pay cash?). Remember also that there are a lot of expenses associated with buying and selling, so if the margin is thin, a lot of it can get eaten up in the transaction costs..

Consider getting in touch with some local wholesalers to bring you some off-market flips if that makes sens for the discount from the MLS and lack of competition..

Dave Savage · Answer

I think the typical outdated homes will sell for a 10-20% discount to new home buyers who don't know how to estimate repair costs/time to repair (I know as I did this with my first house!).   This makes it tough to buy unless there is another motivation for the seller.  The key to these houses will be to find the ones that have been sitting on the market for a long time as those are good targets for lower offers.  
	
	I would connect with 1-2 realtors to have them scour the MLS for you for houses that need either A. A lot of work(listed as REOs, or handyman specials)  B. Vacant properties - they might be willing to take a bigger haircut if they are already moved out of town.   C. 90-120+DOM

You can get daily emails set up by your realtors with new listings, or houses that cross a DOM threshold so you can stay on top of the market.  The trashed houses will be seen by a lot of investors in the first few days of listings so you need to be ready to act.