My Rehab Plan, Feedback please!

Rehabbing & House Flipping
11yFollow

My Rehab Plan, Feedback please!

Landon Dolezal
Maple Valley, WA · Member since 2013 · 83 posts · 25 votes

Alright so im on the brink of pulling the trigger for what might be my first and second rehab deals. However i want to get some feedback from the BP community. I had initially gave up on any private funding. (No family or friends with cash reserve for anything). So Im planning on using HML. However i was also just recently asked if i had wanted to rent a house with a couple of friends, i had pitched to them the idea of a 203k loan (instead of renting) and do a live in-flip. They seemed cautious (typical) told them it would not happen unless the deal was prime. ( I would be giving them a share in the profit) Wouldn't want to risk my credit and my cash reserve i have going for me at the moment, But i figured two roommates would be really reliable for Holding costs. So heres what i have planned:

(Insert rehab deal) pull a (streamline)203k loan, occupy for 90days with 3.5% down Xdollar house. with two roomates. 

  • i know it will depend on deal of house. Im currently looking at a house whose asking price is 200k, rehab costs est 20k So with the flip formula and desired profit of 20k. Im looking to send in offer for 100k. I will have to consult agent for ARV because the comps that i see on Zillow are from 2012. I believe its because the area is a highly desired area. A lot of great houses. However its Zestimate is 235k Also the house says its been listed for 110 days. Definitely have to do some due diligence to make sure there no huge issues.
  • Not sure if i will need a contractor on title because im buying it as a owner occupied so if i wait after 90 days does that mean its not considered a flip? ( Dont have contractors license just yet. )

Next for my own personal investment i wanted to use a Hard Money Lender. ( I have another house that's in the same premises, somewhat similar deal.) I know ill probably speak to HML about the specifics but:

  • would i just ask for a few more thousand more give or take a bit to cover holding costs? After the 3.5% from the first deal ill still have a 2k left for investing cash. but i want to make sure i have enough to rehab and hold. This one i was planning to offer contractor 50% profit since i will probably need him on title. ( I do actually know the contractor personally.) He's very successful and skilled, iv shadowed him on a couple occasions. 

So please if i left out any details ask, i want to make sure my business plan is thorough, if anyone asks about my exit plan, i guess id probably take a hit on the profit and try and least break even (Pay HML first priority). I will rent out if worst comes to worst, i am prepared for that. but im looking for high profit so that i can do rentals a bit easier. This post is more pertaining to the legality and financial standpoint than the deal itself. This is just assuming good deals (which is almost never that easy.) I do have an old coworker who has rehabbed quite a few houses, and said he might be able to advise me and there. Thanks for the feedback and look forward to the criticism. :)

0Reply
31 views

4 Replies

Jump to latestLatest
  • Landon Dolezal
    OP
    Maple Valley, WA · Member since 2013 · 83 posts · 25 votes
    11y

    Just going to add some keywords in case some people who are more familiar with my area might be able to give more input, but I appreciate all advice! :) -Washington -Seattle -King County -rehab 

    0Reply
  • Landon Dolezal
    OP
    Maple Valley, WA · Member since 2013 · 83 posts · 25 votes
    11y

    Just updating my post because i really need to hear some feedback, BP is so active!!! haah

    0Reply
  • Nicole Pettis
    Flipper/Rehabber · St. Louis, MO · Member since 2008 · 489 posts · 300 votes
    11y

    @Landon Dolezal 

    Hello!

    Well you've got a lot of hustle and that's a good thing! However in my opinion you might want to slow it down a little bit.

    Reason being is you are new to this and trying to take on two properties at once when you don't have much experience might be a little much to take on right away and you don't want to loose on two houses in the process. 

    My suggestion is this...Focus on goal #1, which would be purchasing the house with the 203k. If I were you I would just buy it myself and let the other two rent. I wouldn't put all 3 on the loan. Because you are setting yourself up for disaster. Its one thing to have a private investor its another to have 2 other partners you know nothing about real estate and want to add their two cents.

    Also you have to think about worst case scenarios and exit strategies. For example, what if one of your friends want to sell the house and you don't or vice versa, or one of them gets in a horrible accident and gets sued and the house is part of that suit. Or what if one of them decides they aren't going to pay on the loan any longer..so on and so on. You are better off just getting it yourself and then charging rent..you know House Hacking;)

    As for the property, you really need to find true comps. Zillow is not accurate ARV or comps. My suggestion is to partner with an experienced realtor that's familiar with the area and get accurate sold comps so you have a better idea of what the ARV is and do your numbers from there.

    With the FHA/203k loan you have to live in the house for a year before you sell it. Although they might have changed that rule, but when we did ours that's how it was. I would ask your mortgage broker to verify. Also FHA changed the rules, you only need 3% down. Keep in mind for the 203k loan you will need a general contractor to do the work, you can't do it yourself.

    For the second house, I would wait till you are done with the first, get your feet wet there. I know you don't want to hear that, but trust me you don't want to get in over your head with this, especially if you are going to work with a HML on your second. I would educate yourself more on the numbers...ARV/COMPS/REHAB costs and get very familiar with all of those things. Then I would study the area you want to invest in. Days on the market, true sold comps, demographics, inventory. All of these things are important if you want to flip.

    And if you haven't already I recommend getting J Scott's books on Flipping and Rehab, they are probably one of the most informative books I have ever read.

    You have a lot of spunk and hustle which means you will be successful, however just slow down a bit, learn and grow. You have plenty of time, real estate isn't going anywhere.

    Hope this helps!

    0Reply
  • Landon Dolezal
    OP
    Maple Valley, WA · Member since 2013 · 83 posts · 25 votes
    11y

    @Nicole Pettis 

    Thank you for your feedback, I wasnt ezactly planning on doing both at the same time, just that i had both those options ready to go in terms of direction. I dont think i would be able to qualify by myself to just buy the house. Like i said i dont really have any private funding. I wouldnt take on a deal unless we were all in confirmation of the plan. Id like the idea of just renting out and house hacking. At the moment im looking more to "work/invest" by rehabbing to make larger profits so that i can buy SFR. As to the Zillow thing it was theoretical, i would definitely consult and experienced realtor about ARV/comps/ and the market (large pool of buyers). I own both of the Jscott books and have finished them. Ive been reading real estate books since i was 17 so iv been studying for a long time now, and i am ready to get my feet in the water. Thank you so much for you advice :)

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free