Flip/BRRRR going south, seeking help
Rental Property Investor · Los Angeles, CA · Member since 2020 · 141 posts · 61 votes
Flip/BRRRR going south, seeking help
Most Popular Reply
Member since 2024 · 162 posts · 232 votes
2yyou are not alone nor dumb, i read an American study that 40% of home flippers lose or only break even on their projects. please talk to an attorney with bankruptcy and real estate experience before filing as could have long term complications. Good Luck
28 Replies
- Investor · NV and CA · Member since 2016 · 374 posts · 227 votes2y
@Jesse Rodriguez- Do you own the property in an LLC or other business entity? Sometimes you can file for bankruptcy for the entity and not have to file a personal bankruptcy. Cut the losses.
- Rental Property Investor · south carolina and michigan · Member since 2023 · 348 posts · 226 votes2y
Double down and fix it nice to sell but don't over improve.
selling a headache will only give you a bigger headache that you'll need a aspirin the size of a hockey puck to overcome.
There are no shortcuts when you get into this situation that end well for you so put the work in and maybe you will make a buck?
- Rental Property Investor · Los Angeles, CA · Member since 2020 · 141 posts · 61 votes2y
Quote from @Ryan Fox:
@Jesse Rodriguez- Do you own the property in an LLC or other business entity? Sometimes you can file for bankruptcy for the entity and not have to file a personal bankruptcy. Cut the losses.
Hello. No the property is under my name.
- Rental Property Investor · Los Angeles, CA · Member since 2020 · 141 posts · 61 votes2y
Quote from @Nathan M kiefer:
Double down and fix it nice to sell but don't over improve.
selling a headache will only give you a bigger headache that you'll need a aspirin the size of a hockey puck to overcome.
There are no shortcuts when you get into this situation that end well for you so put the work in and maybe you will make a buck?
My concern is because it’s a triplex, I’m limited to sell to another investor. I thought about improving a little but my hard money lender guy said don’t even bother putting any money into it.
- Rental Property Investor · south carolina and michigan · Member since 2023 · 348 posts · 226 votes2y
Quote from @Jesse Rodriguez:
Quote from @Nathan M kiefer:
Double down and fix it nice to sell but don't over improve.
selling a headache will only give you a bigger headache that you'll need a aspirin the size of a hockey puck to overcome.
There are no shortcuts when you get into this situation that end well for you so put the work in and maybe you will make a buck?
My concern is because it’s a triplex, I’m limited to sell to another investor. I thought about improving a little but my hard money lender guy said don’t even bother putting any money into it.
Sounds like a hard money lender that wants to take a property from you when you default.
There's a lot of issues here starting with a guy that will loan you money and once it gets difficult wants you to abandon ship- red flag.
There are a lot of unknowns here but trying to dump it seems like a 100% guarantee to lose money.
- Rental Property Investor · Los Angeles, CA · Member since 2020 · 141 posts · 61 votes2y
@Nathan M kiefer I hope that’s not the case! I have a reasons why I want to sell anyways.
1. It won’t cash flow, I underestimated the rent.
2. I anticipate future problems with the property, there’s foundational and electrical problems with it. I underestimated the rehab and already over budget without even starting work.3. I’ll end up paying money no matter what.
- Member since 2024 · 162 posts · 232 votes2y
you are not alone nor dumb, i read an American study that 40% of home flippers lose or only break even on their projects. please talk to an attorney with bankruptcy and real estate experience before filing as could have long term complications. Good Luck
- 2yNicholas L.Pro MemberFlipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
just to confirm - you haven't even started the rehab?
- Rental Property Investor · Los Angeles, CA · Member since 2020 · 141 posts · 61 votes2y
@Nicholas L. No, I have not.
- Rental Property Investor · Perry Hall, MD · Member since 2016 · 588 posts · 600 votes2y
Hello @Jesse Rodriguez, it's difficult to give more specific advice without more specific details. If it's listed on the MLS and it's not getting traction there are a number of reasons why that may happen but more often than not it's price.
It sounds like you listed it at a price that would satisfy your loan which means you're trying to sell it for more than you bought it. Assuming you paid exactly what it was worth the first time around, someone would have to overpay to take it off your hands and make you whole. While that certainly can happen, it may also take a while and during that time you're continuing to pay on that expensive loan.
What are the numbers on this deal? What's fair market rent? ARV? Cost to rehab to achieve that ARV? - Rental Property Investor · Los Angeles, CA · Member since 2020 · 141 posts · 61 votes2y
@Jon K. Thanls for the response. Your right about the lost price. I bought at 225k off a wholesaler, I thought the arv would be 310-325k but it's more like 240-250k. My rehab budget is 50k but after getting bids, it'll more like 88k. Market rent would total $2500. I'd likely be negative cash flow as well. So now I'm trying to sell without putting any work just so I can pay off that HML.
- Rental Property Investor · Perry Hall, MD · Member since 2016 · 588 posts · 600 votes2y
Trusting your numbers, it sounds like the current value of the property is around 155k if not less. That's 250k minus 88, factoring in some closing costs. And that's not including any kind of margin. Most BRRRR investors will want to be all in for 75% to 80% of the ARV, flippers will want a similar or greater margin. Reality is seldom so absolute so all of those numbers are not necessarily perfect but that's likely the gist of it.
Some other things to consider: Is your scope of work appropriate for rental grade? Do you have to do everything you plan to do to get fair market rent? Compare what you planned to what other similar rentals have in the same area to make sure it's all necessary. Pay attention to what finishes they have.
As far as cash flow goes, it's subjective but $2,500/month meets the 1% rule for a property valued at 250k and is generally not bad. If you're 80% leveraged that's a 200k loan. At 7.5% your monthly payment is around $1,400 not including taxes or insurance. I have no idea what they are for your property so I used $2,500 and $600 respectively which takes it up to $1,650. Using 15% of gross rent to cover maintenance, capex and vacancies and you're left with $475. Again, I had to do some guesswork and rules of thumbs here but it may cash flow decently if you dig into the math.
So what can you do? Sell it for a substantial loss: maybe 80k? Or put the 88k in, refi out of the HML which requires you to come out of pocket quite a bit of money as well, and hold it long term which on paper may eventually make you whole. There's also the option of sweat equity if you don't have the capital to pay for the remodel: In other words, buy the materials and do the work yourself over time. The downside to this of course is that it will take a lot longer and you're still paying for the HML.
Is it listed with an agent/realtor? If so, what is their opinion of the current value?
It is very curious to me that the lender lent you so much on the property without doing any due diligence of their own. I don't believe that this is a lender that just wants you to default so that they can foreclose and take the property themselves because that doesn't make financial sense for them if the numbers I put at the beginning of this reply were anything close to accurate.
- Rental Property Investor · south carolina and michigan · Member since 2023 · 348 posts · 226 votes2yDoesn't make sense with the lender but we will see if it happens.
Quote from @Jon K.:
Trusting your numbers, it sounds like the current value of the property is around 155k if not less. That's 250k minus 88, factoring in some closing costs. And that's not including any kind of margin. Most BRRRR investors will want to be all in for 75% to 80% of the ARV, flippers will want a similar or greater margin. Reality is seldom so absolute so all of those numbers are not necessarily perfect but that's likely the gist of it.
Some other things to consider: Is your scope of work appropriate for rental grade? Do you have to do everything you plan to do to get fair market rent? Compare what you planned to what other similar rentals have in the same area to make sure it's all necessary. Pay attention to what finishes they have.
As far as cash flow goes, it's subjective but $2,500/month meets the 1% rule for a property valued at 250k and is generally not bad. If you're 80% leveraged that's a 200k loan. At 7.5% your monthly payment is around $1,400 not including taxes or insurance. I have no idea what they are for your property so I used $2,500 and $600 respectively which takes it up to $1,650. Using 15% of gross rent to cover maintenance, capex and vacancies and you're left with $475. Again, I had to do some guesswork and rules of thumbs here but it may cash flow decently if you dig into the math.
So what can you do? Sell it for a substantial loss: maybe 80k? Or put the 88k in, refi out of the HML which requires you to come out of pocket quite a bit of money as well, and hold it long term which on paper may eventually make you whole. There's also the option of sweat equity if you don't have the capital to pay for the remodel: In other words, buy the materials and do the work yourself over time. The downside to this of course is that it will take a lot longer and you're still paying for the HML.
Is it listed with an agent/realtor? If so, what is their opinion of the current value?
It is very curious to me that the lender lent you so much on the property without doing any due diligence of their own. I don't believe that this is a lender that just wants you to default so that they can foreclose and take the property themselves because that doesn't make financial sense for them if the numbers I put at the beginning of this reply were anything close to accurate.
fix and hold or lose your shirt and sell as is. That's where this is at for sure - Investor · Milwaukee - Mequon, WI · Member since 2010 · 5k+ posts · 7k+ votes2y
Quote from @Jesse Rodriguez:
@Jon K. Thanls for the response. Your right about the lost price. I bought at 225k off a wholesaler, I thought the arv would be 310-325k but it's more like 240-250k. My rehab budget is 50k but after getting bids, it'll more like 88k. Market rent would total $2500. I'd likely be negative cash flow as well. So now I'm trying to sell without putting any work just so I can pay off that HML.
Assume the triplex is not in LA, but $2,500 in rent seems very low. And you might be able to get the rehab cost down. Normally if a flip fails, you switch to hold and rent. Time cures everything, rents go up, property values go up. Did you buy it out of state?
You are not alone, we are here to help, but you have to give us more details about the deal.
- Member since 2024 · 17 posts · 5 votes2y
Quote from @Jon K.:
Trusting your numbers, it sounds like the current value of the property is around 155k if not less. That's 250k minus 88, factoring in some closing costs. And that's not including any kind of margin. Most BRRRR investors will want to be all in for 75% to 80% of the ARV, flippers will want a similar or greater margin. Reality is seldom so absolute so all of those numbers are not necessarily perfect but that's likely the gist of it.
Some other things to consider: Is your scope of work appropriate for rental grade? Do you have to do everything you plan to do to get fair market rent? Compare what you planned to what other similar rentals have in the same area to make sure it's all necessary. Pay attention to what finishes they have.
As far as cash flow goes, it's subjective but $2,500/month meets the 1% rule for a property valued at 250k and is generally not bad. If you're 80% leveraged that's a 200k loan. At 7.5% your monthly payment is around $1,400 not including taxes or insurance. I have no idea what they are for your property so I used $2,500 and $600 respectively which takes it up to $1,650. Using 15% of gross rent to cover maintenance, capex and vacancies and you're left with $475. Again, I had to do some guesswork and rules of thumbs here but it may cash flow decently if you dig into the math.
So what can you do? Sell it for a substantial loss: maybe 80k? Or put the 88k in, refi out of the HML which requires you to come out of pocket quite a bit of money as well, and hold it long term which on paper may eventually make you whole. There's also the option of sweat equity if you don't have the capital to pay for the remodel: In other words, buy the materials and do the work yourself over time. The downside to this of course is that it will take a lot longer and you're still paying for the HML.
Is it listed with an agent/realtor? If so, what is their opinion of the current value?
It is very curious to me that the lender lent you so much on the property without doing any due diligence of their own. I don't believe that this is a lender that just wants you to default so that they can foreclose and take the property themselves because that doesn't make financial sense for them if the numbers I put at the beginning of this reply were anything close to accurate.
This is an educated and thought out response.
- 2yBill J FayPro MemberLender · San Diego · Member since 2023 · 216 posts · 209 votes
Quote from @Jesse Rodriguez:
Quote from @Nathan M kiefer:
Double down and fix it nice to sell but don't over improve.
selling a headache will only give you a bigger headache that you'll need a aspirin the size of a hockey puck to overcome.
There are no shortcuts when you get into this situation that end well for you so put the work in and maybe you will make a buck?
My concern is because it’s a triplex, I’m limited to sell to another investor. I thought about improving a little but my hard money lender guy said don’t even bother putting any money into it.
Your lender that financed this project told you not to put any money into it? I would not use this lender in the future. Make sure to work with a lender that does their due diligence before issuing you Terms. Now that you're in it, who are you using as your Agent? Are they investor focused? Do they also renovate properties? They should be your advocate to help come up with the correct exit strategy.
- 12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes2y
have you had an as is and arv appraisal done ? Do you have a scope of work for the remaining work to be done ?
- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes2yNo good way to answer without more information, but what I gather here is that:
Quote from @Jesse Rodriguez:
@Jon K. Thanls for the response. Your right about the lost price. I bought at 225k off a wholesaler, I thought the arv would be 310-325k but it's more like 240-250k. My rehab budget is 50k but after getting bids, it'll more like 88k. Market rent would total $2500. I'd likely be negative cash flow as well. So now I'm trying to sell without putting any work just so I can pay off that HML.
1. You bought for $225 and ARV is $250. That's a killer right there. But you were killed even in your original numbers. If you thought ARV would be $325 and your rehab budget was $50k you shouldn't have paid more than about $190k for it (about 70%). You always need cushion for cost overruns, closing costs, time delays, and all the host(s) of things that can go wrong with a flip. Even if your original numbers were right you were going to be working for free - 325-225-50=50k-holding costs-closing costs-taxes = about Zero.
2. Total ARV rent for 3 units is $2500? Must be small units, that's $833 per unit. What are local market rents for similar sized units in your area?
3. I'd be a little suspicious of the HML because most want you to succeed - there's no glory in taking back a unit unless they've grossly underloaned on the value. Unless the HML is Joe's Uncle, who knows nothing about RE, they are generally not going to lend you something that's guaranteed to fail which is the case using your original numbers.
If you're not on the personal hook for any deficiency, or don't have any assets, you may have to just chalk this one up to bankruptcy and learn from the mistakes. If all of your numbers are right you're unlikely to find someone who's going to take this off your hands without you bringing a check to closing.
2.
Skyline Properties - Rental Property Investor · Los Angeles, CA · Member since 2020 · 141 posts · 61 votes2y
Quote from @JD Martin:
No good way to answer without more information, but what I gather here is that:Quote from @Jesse Rodriguez:
@Jon K. Thanls for the response. Your right about the lost price. I bought at 225k off a wholesaler, I thought the arv would be 310-325k but it's more like 240-250k. My rehab budget is 50k but after getting bids, it'll more like 88k. Market rent would total $2500. I'd likely be negative cash flow as well. So now I'm trying to sell without putting any work just so I can pay off that HML.
1. You bought for $225 and ARV is $250. That's a killer right there. But you were killed even in your original numbers. If you thought ARV would be $325 and your rehab budget was $50k you shouldn't have paid more than about $190k for it (about 70%). You always need cushion for cost overruns, closing costs, time delays, and all the host(s) of things that can go wrong with a flip. Even if your original numbers were right you were going to be working for free - 325-225-50=50k-holding costs-closing costs-taxes = about Zero.
2. Total ARV rent for 3 units is $2500? Must be small units, that's $833 per unit. What are local market rents for similar sized units in your area?
3. I'd be a little suspicious of the HML because most want you to succeed - there's no glory in taking back a unit unless they've grossly underloaned on the value. Unless the HML is Joe's Uncle, who knows nothing about RE, they are generally not going to lend you something that's guaranteed to fail which is the case using your original numbers.
If you're not on the personal hook for any deficiency, or don't have any assets, you may have to just chalk this one up to bankruptcy and learn from the mistakes. If all of your numbers are right you're unlikely to find someone who's going to take this off your hands without you bringing a check to closing.
2.Thank you for the insightful response, I think you’re 100% right. You pretty much laid out the exact situation, so I’m wondering if I should fix and hold or sell for a loss. The problem is that it’s listed for 239k and I don’t think it will sell. So I’m going to lose money either way, so I’m trying to figure out how to lose less.
- Rental Property Investor · Los Angeles, CA · Member since 2020 · 141 posts · 61 votes2y
Quote from @Jacob Sherman:
have you had an as is and arv appraisal done ? Do you have a scope of work for the remaining work to be done ?
The ARV was done by the lender and it was 310-325k but my agent send me the comps which showed 240-250k. The property is now listed as 239k. I have the scope of work which totals around 80k, possibly more because I just found there is a water leak in the main line 😢
I was wondering if I can fix the other units (total work ~20k-25k) and sell with the last unit still distressed. - 12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes2y
Quote from @Jesse Rodriguez:
Quote from @Jacob Sherman:
have you had an as is and arv appraisal done ? Do you have a scope of work for the remaining work to be done ?
The ARV was done by the lender and it was 310-325k but my agent send me the comps it was for 240-250k which now the property is listed as 239k. I have the scope of works which totals around 80k, possibly more because I just found there is a water leak in the main line 😢
how much do you owe on the hard money ?
- Rental Property Investor · Los Angeles, CA · Member since 2020 · 141 posts · 61 votes2y
@Bill J Fay Im definitely on board with you and will not use them anymore. I feel like I got scammed but also my fault for failing on the due diligence . The agent I’m using is an real estar investor agent. She is on BP and owns a PM company that renovates which is where I got my bids from.
- Rental Property Investor · Los Angeles, CA · Member since 2020 · 141 posts · 61 votes2y
@Nathan M kiefer Yup, that’s where I’m at. I’m trying to see which will lose me less money.
- Rental Property Investor · Los Angeles, CA · Member since 2020 · 141 posts · 61 votes2y
@Jon K. You’re totally right, these are things I didn’t do prior to purchasing. Now I understand the concept of you make money when you buy. I can’t do sweat equity, I don’t live in the same state and work full time. I listed with an agent who also runs the PM company, she sent me compa 240-250k. Not sure about this lender either, but I won’t use them again.
- Rental Property Investor · south carolina and michigan · Member since 2023 · 348 posts · 226 votes2y
Quote from @Jesse Rodriguez:
@Nathan M kiefer Yup, that’s where I’m at. I’m trying to see which will lose me less money.
fix and hold and lose a little for a while, while paying down debt, then refi out and keep the asset. theres no way i could take a bath like you are considering. I agree what others have said sweat equity it and do what you can hiring out only what you have to in order to take the shortest straightest line to cash flow coming in.
by the time you sell this thing you will have 2-3 more payments out the door as well.
its clear to me, they both hurt but the option to hold will recover...some day.
so you either set yourself back for a couple years losing and paying on a property you dont own or a little every month on one you do that will eventually have upside, unfortunately if i was in your position i would look in the mirror and say made your bed- lie in it.
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