New Investor - Fix & Flip - Offer Strategy & Tenant Management

[Trevor Brouelette]

Hello everyone!

I'm a new real estate investor focused on the Fix & Flip strategy in North County San Diego. I'm fortunate to have strong financial backing—an equity partner and a reliable private money lender who have investment experience—allowing us to pay cash for the purchase.

I’ve identified a promising property and am preparing my action plan. I'd appreciate the community's insights, particularly regarding my offering strategy and managing the in-place tenant.

The Opportunity & The Numbers

• Location: North County San Diego
• List Price: $719,000
• Estimated ARV: Approx. $840,000
• Estimated Repair Cost (ERC): $75,000 to $100,000 (Full cosmetic rehab only; major systems are reportedly sound. Entire home is dated, distressed, and ugly).
• Target Net Profit: $50,000+
• PML Terms: 10% interest-only rate.

Target Buyer: We are aiming for young families who want a nice, clean, modern home with good finishes and clean curb appeal—nothing luxury or over the top.

The Tenant & Holding Strategy

• Current Occupancy: Tenant is month-to-month, currently paying $2,500/month.
• Proposed Plan: The tenant reportedly “excellent” and has offered to pay $3,000/month to stay for a few extra months.
• Financial & Strategic Benefit: While tenant is occupied, the property will yield an estimated 4% cash-on-cash return. This could allow me to build my network of subcontractors and finalize detailed renovation plans without the pressure of a vacant asset over the holiday season.

Tenant Legal Question: Since this is in California, what is the required notice to terminate a month-to-month lease for an owner-occupied renovation: 30 days or 60 days?

My Offer & Due Diligence Plan

I am attending the open house next week to verify the property's condition.

My plan is to have an offer ready to go and submit it immediately if the property meets expectations. Crucially, my offer would include a brief inspection contingency focused specifically on verifying the major systems (HVAC, roof, etc.) that the agent claims are in good shape.

Core Questions & Request for Advice

1. Is my offer plan wise to have something drafted prior to the open house?
2. Tenant Management: Is the strategy of keeping the tenant for 2-3 months to offset costs and defer the rehab startup a smart move or a complication? What are the biggest logistical or legal pitfalls I need to be aware of when buying a tenant-occupied flip in CA?

Any guidance or cautionary tales from those who have successfully flipped in this region or dealt with similar tenant scenarios would be incredibly valuable!

[Dan H.]

I will start by answering your question about tenant notice. SFR are not rent controlled so you have no issues there.

In every jurisdiction I am aware of in San Diego county, Month to month lease requires a 2 month notice of lease termination if the tenant has been in the property over a year and one month notice if the tenant has been in the property less than a year.  

The only impact is if tenant does not vacate when legally required.   Evictions can take a lot of time.   One minor procedural issue can add months to the eviction timeline.   In the unlikely event you encounter a tenant that does not vacate, I strongly recommend the use of an attorney that specializes in evictions.

Now for your numbers: I agree with Nickolas about no COC but not necessarily due to closing cost impact as often that can be rolled into a loan but because rents below 0.5% monthly ratio bleed cash (huge negative cash flow) at high LTV with current market loan terms. At current rates and high LTV, sustained costs would have this negative cash flow at double that rent.

Now for the flip numbers (I always use the conservative numbers from any range):

$719k purchase + $100k (rehab) + ($6350 (holding costs: $5.4k/month (interest only on $650k loan), $700/month property tax, $100/month insurance, $150/month utilities) * months to rehab and sell) + $75.6k  (selling costs (typically between 6% and 9% in San Diego if not a RE agent/broker - remember I use the conservative number of all ranges in my underwriting)

If we use 6 months to rehab and sell (which is more aggressive than I would use in personnel underwriting)

719,000 + 100,0000 + (6350 * 6) + 75,600 =$932,700

$932k - $840k (ARV) = -$92k.

Do you see anyway to make a decent profit on this flip.   If you are an re-broker selling costs can be reduced a few percent).   I was already aggressive on the timeline and would highly recommend against reducing it).

The numbers show this does not work for a flip (in this case does not come close to working) which will be the case for very 99% of mls listings. 

My last flip offer was $360k for down to studs rehab of 2/2 condo 2 blocks south of sdsu with an ARV of $490k with a preferred financing that is unavailable to most (5%). The ball was dropped and it sold for $362.5k (I would have definitely been able to offer more but we were told there were 5 offers higher than ours, seems likely that was BS in hopes we would raise our offer substantially - I suspect our offer was shopped as our initial offer was $90k over initial ask). With the preferred financing and not extremely hands off (my son and his team were going to act as PM and do a lot of work), we were only projecting $30k profit).

You will be challenged to find flips that produce a good return on the mls.  I suggest if you want to go this route, start networking at RE meet ups.  It has been a while since I have purchased something that was listed on the mls and my recent offers on mls properties have been marginal on expected return (I.e. something I would not have even considered before 2022).

Good luck