Through BP/J Scott's books I feel like I have a decently solid grasp on what I do to approach a successful flip. Now I'm just struggling with finding something to flip

12 Replies

I've been doing as much research and reading as I can possibly do the past few weeks in anticipation of trying my hand at my first flip. I'm failing miserably at finding anything to flip, though.

My two problems seem to be: 

a) not enough capital to outright buy and renovate

b) too many competitors

I have about 60k cash I feel comfortable putting in upfront, perhaps 80. With this amount of cash, I can *maybe* purchase a home outright, but that leaves me with $0 funds for holding/rehab costs. I feel like this is significantly hampering my ability to find a place right off of the bat because I suspect the only deals I'm going to find are going to be through house-hunting on my own/direct mailings. MLS listings have been an abysmal failure for me so far.

That brings me to my next point - the competition for MLS listings is so incredible (and I'm not even in that big of a city) that I don't see how anyone can purchase a house this way. Just the other day I went to a promising lead and there were six (6!) groups of investors/contractors looking at the place when I got there. Of course they were all making random comments to me about what a mess the place was to scare me off. My realtor and I did a quick analysis of the place and it was in such bad condition that we both thought I'd realistically have to get it for ~60-65k to turn a profit. It wound up selling for 85 a few days later to a guy who is a contractor and can rehab for way less than I can.

I suppose at this point I'm just unsure of how to approach hunting for a house. I suspect trying to purchase homes from people before they're listed is the way to go, but I don't have the capital to give them appealing terms of just outright buying. The MLS, on the other hand, has such insane competition that I don't think I'll ever find a decent deal on there.

Thoughts? Suggestions? 

Thanks BP

@Jeremy Hale  

  this is the way it is in hot markets.  and in markets were you can acutally buy and retail a house... which your market must be one of those.

I used to do rehabs.. I bought at court house steps rehabbed and resold here in Portlandia. its so insanely competitive that its hard to compete against those that do the work themselves... I ended up lending to those so at least I make a nice return lending my funds instead of sitting on the funds for months on end trying to get a deal.

I morphed into New construction much less competition  as dollars are more.. still tight for lots. but margins are better if you get the right lot and sales are much eaiser as folks really like NEWCO.. not sure how that plays in your markets. we pay 100 to 200k for a lot spend 200 to 400k building the homes and sell in the 600 to 800 range..   then we have out of inner city were we pay 50 to 80 for lot  build home for 150 to 200k sell at 260 to 320k.. so all in all if we can make 25 to 50k net per house we are happy.. we get 90% financing from my bank at 6% apr  so cash on cash we make 100% or better every 7 to 8 months.. per house. I have 14 going vertical right now. so for 400k or less in capital I have chance to make 600 to 700k for the year off of these deals. and I did not have to fight tooth and nail for a rehabber.. those are the numbers a builder uses see if it will work for you in your market.

Excuse my novice sense of real estate here. How do you make money on new constructions? If you can buy and build for 200k, why would someone pay you 400k for that house if they could similarly build it for 200k? I'm not doubting that you do in fact do that, I'm sure wondering what the principles are behind it that allow you to.

I decided to be a bit more proactive than I have been and make some postings about purchasing distressed/defaulting on mortgage properties on a few place. If I can go ahead and get another ~50k (perhaps borrow from my parents, though they seem to think the idea of flipping is silly and a waste of time so I don't know about that), I might go ahead and purchase a list for some direct mailings. I checked out listsource and they unfortunately only had ~110 contacts (and they were expensive, I think, at 65c/lead) for preforeclosure/50-200k homes/lived in for x amount of years. If I can get some funding, I might go ahead and get that list and see if I can't find a property out of that.

Originally posted by @Jeremy Hale:

Excuse my novice sense of real estate here. How do you make money on new constructions? If you can buy and build for 200k, why would someone pay you 400k for that house if they could similarly build it for 200k? I'm not doubting that you do in fact do that, I'm sure wondering what the principles are behind it that allow you to.


The same principles that allow a flipper to make a profit. If a flipper can get a property for $50K and fix it for $50K why would a buyer pay $150K? Because buyers don't have the knowledge, time, experience, or economy of scale to make it worth doing. 

Consider finding other investors in your area that also have cash and pool your money so your prospects are larger in number. Margins are bigger on more expensive property and the competition starts getting thinner up there. I am experiencing the same problem here in Roanoke, VA. The good ole boys here gobble everything up before anyone on the outside looking in can even get a chance to make an offer. It's very frustrating, fortunately they rarely buy anything for more than $30,000, so I am able to sneak in on the more expensive properties. Plus, I stole one of their really skilled contractors, so I can flip less expensively now too. Hope this helps.

Originally posted by @Stephanie W.:

Consider finding other investors in your area that also have cash and pool your money so your prospects are larger in number. Margins are bigger on more expensive property and the competition starts getting thinner up there. I am experiencing the same problem here in Roanoke, VA. The good ole boys here gobble everything up before anyone on the outside looking in can even get a chance to make an offer. It's very frustrating, fortunately they rarely buy anything for more than $30,000, so I am able to sneak in on the more expensive properties. Plus, I stole one of their really skilled contractors, so I can flip less expensively now too. Hope this helps.

The problem with that, for me, is two-fold.

On one hand, I would never feel comfortable giving a strange thousands of dollars to split a rehab project. What if we disagree on how things should be done? What if he totally botches the project? What if he hires bad workers? In a partnership, one person really needs to have ultimate say or else things get bogged down. I wouldn't want someone else having say in my money.

On the other hand, I'm very new to this whole thing. I wouldn't feel comfortable being in charge of someone else's money, either. So, I'd rather just give it a shot on my own, though perhaps that's just not in the plans for me.

Ahhhh, one of THOSE... :-)! Yes, I understand your trepidation, but you can scope folks out via social media and BP to vet them to a large degree. Plus, going to friends and family is always an option. Right now none of my investors want any say at all, so if I found someone that I knew could do a flip and get us say 10% return within 5-6 months, I would be willing to risk it to be able to get a bigger pile of cash. There are people on BP that are so famously successful I wouldn't have an issue at all being one of their investors, even with my investor's money! Sometimes, you just have to let go of the reins and have faith in your judgement. Let me know if I can be of help. I'm always happy to give a little shove now and then.

BTW, Jeremy, get a picture up asap, it really makes a difference in how people respond to you on BP.

Originally posted by @Stephanie W.:

Ahhhh, one of THOSE... :-)! Yes, I understand your trepidation, but you can scope folks out via social media and BP to vet them to a large degree. Plus, going to friends and family is always an option. Right now none of my investors want any say at all, so if I found someone that I knew could do a flip and get us say 10% return within 5-6 months, I would be willing to risk it to be able to get a bigger pile of cash. There are people on BP that are so famously successful I wouldn't have an issue at all being one of their investors, even with my investor's money! Sometimes, you just have to let go of the reins and have faith in your judgement. Let me know if I can be of help. I'm always happy to give a little shove now and then.

 Haha. There are many successful investors on here that I wouldn't mind partnering up with, if only to learn from. Unfortunately, I don't see many (any) of them from Rochester, MN. Heck, I don't even see Minnesotans in general. Who are all of these people buying every property available?!

Also, I'm putting in my first offer on a place. It's currently at auction with a bid of 79k, and I'm only putting in a cash offer of 55k (I would go up as high as 65k), so I doubt my offer will go anywhere, but we'll see. I don't know how anyone plans on making money on this place @ 80k since it needs realistically 40k in rehab with a resale of ~$145k. Wish me luck!

Keep your chin up, it took me 8 months to finally get a flip to close.  You can find a hard money person for the funding. They are not cheap, but are good sources of $$$ to get you started. Properties where I am are bringing all the money on Multiple bids. 

 My scenario,  pd $201k, appx 30k to rehab, hard money will cost appx 15k. House should sell for $300k.  40-50k profit ?  Not bad for a couple months work. Keep at it :)

good luck !

@Jeremy Hale  

  your missing a few  things we build for 200k and sell for 400k but we pay 80k for the lot we have cost of capital ( in my case 6% because I borrow from a local community bank) you have sales commission of 24k  you have tax's insurance.. my builders risk insurance my comp insurance that runs 2 to 3k per house when your in new construction I have one full time bookkeeper that makes his monthly salary etc et.   The reason most folks don't buy and build themselves is two fold.. It is exactly like you stated in one of your above posts they are worried that something will go wonky with the GC.. believe it or not its hard to find a GC that did not get bruised in the GFC so even though they are not the borrower banks look at GC creds and will not lend if the GC has got bad recent history.. ( not all banks but many) as well as construction to perm loans are pretty tough to get.. Then you have the time it takes to build a home.. the fights the couples get into during the process its very stressful building a home and having to make every decision. So that is why people by and large just want to buy when its done.. Plus the builder is paying the carrying cost until completion.. Now we pre sell half or so of what we built.. But we have strict guidelines and time tables for the buyer to make decisions.. and we do not allow them on the Job site but once every 2 weeks at a prescribed time and we make them have their Realtor present. this cuts down on visits as the Realtor does not want to stand around why the client walks through the house... Etc etc  these are the nuances.. The only reason I even list my houses before they are dried in is because my bank will not count a pre sale against my pre approved 12 loans I can have at any time ... So if I have 5 presales I can have 17 going vertical at anyone time.  But yes good question.. hopefully my long winded answer helps you understand some of the process in Newco.

There are likely other investors (or would-be investors) who have the same thoughts as you.

If you partner with someone, you're not just giving them a blank check.  You are both investing money in a project.  They may have the same thoughts as you -- how do they know who you're going to hire, etc.?

Both of you sit down together, make the buying decisions together, and split up tasks like hiring contractors, etc.  If you both put up 50% of the money, you're in it together to win it together.

There has to be trust, but you can and should hire an attorney to draft up legal documents if you're going to form a partnership.

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