Flip or hold as a rental?

Question

I just gave an offer for a 4 bedroom/2.5 bath 2050 s.f SFH house, 450k, 8000 s.f lot, built in 1973. This house needs new paint, floor, popcorn ceiling removal, and a new kitchen and bathroom if a flip. questions:

1. how much is it to replace windows? is it necessary to replace windows? The windows are original, single pane windows, 7 big windows, 3 small bathroom windows, 1 slide door.

2. A house nearby was sold for 420k earlier this year and flipped (3 bedroom, 1600 s.f. 10000 s.f. lot, currently on the market for 649k. I don't think it will sell at that price. I would price this house for 599k for a quick sale. The problem of this area is that this is an older. established area of this town. 4 miles away is a huge new development area with lots of new houses selling for 650k for a 4 bedroom house, 4000 s.f. lot. Will an older, newly flipped house have a market? The new house does have 5k mello roos/year.

3. should I just hold it as a rental? leave the kitchen and bathroom as is, and rent it out. Probably rent is to be $2800/month. Hold it until the market is more clear and then do the flip.

Kyle Ebersole · Answer

Congrats on the offer Lilly! Great questions.

1. Completely varies. I pay $450 a window but I have a deal with my supplier, I give them a lot of work, etc. The bigger windows will cost potentially double the amount that a normal window costs, just a heads up. Get a bunch of different quotes, ask what their pricing is on different levels of quality, different brands of windows etc. Costs can vary a ton. If you are in a nice market and your going up against newer homes, I would say that replacing the windows to vinyl, newer windows is a must.

2. An older, flipped home will always have a market but I will never use a new build as a comp. Unless you have a lot more land (I'm talking an acre +) and a lot more sq ft, I wouldn't want to be close to new builds at all in price.

3. Love the idea, but just running off of 1% rule, it doesn't seem like the numbers will work for this one at $2800 a month in rent. Maybe you have different financing and you are not taking a loan out on the property, then it would work! But if you are taking a loan out on the property, I doubt $2800 would cashflow for you.

Lilly Fang · Answer

Thank you everyone for those great suggestions!

I have always liked to give a new life to an ugly house. Flipping is a perfect "career" and "hobby" for me. However, I don't really like always flipping since my goal is to have a passive income flow so that I don't have to work on my full-time job. I have never done a flip, only did a remodeling of my primary residence. The market is tough with such a high-interest rate, but I have to start somewhere. Fortunately, I have a day job to finance the project.

In our area, it's really hard to have positive cash flow for a rental in a B+ area. Well, in California in general. I plan to lose a few hundred a month but hopefully will be balanced out by my other rental's positive cash flow.

Alan F. · Answer

Hi Lily, congrats on the offer. If I may suggest reading as much as possible about flipping. J Scott's book is great ( I think you can find it on BP) There is alot information & I would also suggest finding other books. Knowledge is power.

1. Any pricing on windows we give won't be as accurate as estimates by contractors who walk the property. Brand, product line, nature of house framing/siding etc will all play a part in the pricing

Get a minimum of 3 estimates, 5 even better. Pick their brains, you'll learn alot, retain the information. This will also help you define your criteria (SOP) to run your flipping company.

Go to cslb website & there's a license check function plus the business & professions codes are outlined really well. It outlines California residential home improvement guidelines/requirements including down payments etc. This is really important & the cslb is under state consumer affairs. The objective being to protect the customer (you) www.cslb.gov

2. I usually only flip, but holding as a LTR is one of the best exit strategies should the house not sell quickly, sometimes STR/MTR is another good exit strategy. The more the better to lower your risk.

3. See number 2

Sometimes defining your objectives will help you answer your own questions.

I look ar it as define your goals and make a plan to execute them, those may change over time & that's good because you're evolving ad a business owner.

Dont forget your holding costs, taxes, builders risk insurance, utilities, security etc.

Remember to manage everyone & be on site as much as possible. Hands on IMO is best in the beginning & as you build report you'll be able to be a bit more hands off.

Theres more I'm forgetting hence the book & SOP suggestions.

Flipping is challenging but can be very rewarding, plus the learning is priceless for othe REI endeavors.

I wish you the very best!

Flip or hold as a rental?

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