First real flip

18 Replies

I am closing on a property I just bought in 2 weeks. It is a old SF that was converted into a dumpy duplex and I will turn it back into a single. I believe that is where the money is in this area. Its was REO and I paid 48,000 for it and it is in a 110,000 area. The rehab estimate from the GC is at 43,000. I know this puts the numbers very thin. I was thinking of trying to knock around 10-15,000 off by getting with the GC and doing some of the work my self. There is no doubt that I can do the work but it will extend my hold time by a month for sure. How does my plan sound.

Unless your holding costs are upwards of $15k per month, I'd say do some of the work yourself and sit on it for another month. I'm not sure about your market, but I would think it would be easier to resell it as a SFH, so that doesn't sound like a bad idea.

Its good that you are looking at both products (SF and Duplex) to create your strategy. My question: is the duplex livable now? Can you rent it out? What is stopping you from keeping it for cash flow? Or fixing it up to product higher rent and then selling it for a profit?

Originally posted by @Eric Thomson :

Unless your holding costs are upwards of $15k per month, I'd say do some of the work yourself and sit on it for another month. I'm not sure about your market, but I would think it would be easier to resell it as a SFH, so that doesn't sound like a bad idea.

 Yea, my holding cost will be around 1000 or less so I think that's what I will do.

Originally posted by @Andrew Wydra :

Its good that you are looking at both products (SF and Duplex) to create your strategy. My question: is the duplex livable now? Can you rent it out? What is stopping you from keeping it for cash flow? Or fixing it up to product higher rent and then selling it for a profit?

Andrew, I don't like this property as a duplex. This property is in an old historic area that is making a come back and I believe the value is in it as a SFH. Plus I am doing this as a flip so I can start building up some cash and do more flips. I want to start doing real estate investing full time and this is going to be a test property.

$48k purchase (plus closing costs) with $43k rehab and a $110k exit is an 83% deal! With the exit at or around $100k, that is not even close to anything you should touch. Knocking off $10k by doing some rehab yourself and it only costing you $1000 extra in hold costs would make sense if it works out that way, but even with that, your margins are too thin, any mistake, any problem selling forcing you to lower price and all your profit and possibly money invested is gone.

With resale costs, you can expect around $7500 plus you will have holding costs (taxes, insurance, utilities, maintenance, and debt service if you take a loan). With only $19k gross spread, less acquisition costs, holding costs, and resale costs, you would be lucky if you made money.

If you haven't already get a few other bids for same work...then work in your estimated savings by doing your own work on part of it.

I believe I have 10000 figured into the equation for that.  Very thin numbers I know.

With this house I very underestimated the rehab cost. This is my first real flip. I will make it work and I will make a profit. I got this house at less then 50% of the value of other comps in the area. I saw that as a good deal. It's the renovation that is way more then I expected so now I hope to make up for that with sweat equity. This is my goal/plan. I am hoping to make between  10-20. Thanks for all the input and keep it coining for I have much to learn.

Originally posted by @Dennis Sprague :

With this house I very underestimated the rehab cost. This is my first real flip. I will make it work and I will make a profit. I got this house at less then 50% of the value of other comps in the area. I saw that as a good deal. It's the renovation that is way more then I expected so now I hope to make up for that with sweat equity. This is my goal/plan. I am hoping to make between  10-20. Thanks for all the input and keep it coining for I have much to learn.

 You should really change your thinking as your statement above is a big mistake and a common one amount east new investors and agents. You did not get this for below 50% of value. You got it for about 85% which is barely enough to cover costs. Also, numbers don't lie, you can Not make a deal out of these numbers. It us either a deal or not a deal. Your positive ness is good, however, there is a fine line between positive thinking and reality. There is just no way to profit $20k on this deal and the numbers show it. $10k would be a miracle and breaking even would be the likely best case. Now, if you take that knowing this is your "education time" and nothing more, than great. But don't expect to profit on a deal with these numbers, it is just not reality and the math shows that.

Even with the 70% rule - rehab cost you'd be hard pressed to get out without losing.

The 70% rule works great for most properties

You take the ARV(After Repair Value) x 70% - rehab costs to get you MAO(Maximum Allowable Offer). Not precise but close.

One thing that you may be able to do to help reduce the cost is find a young energetic new investor to come help with the DIY part that you are looking to take on your self. I know that many of the guys I work with would come volunteer with me on a flip just to learn basics of the business/construction. I'm not saying take advantage of someone but they can gain valuable experience and you can be transparent with the numbers and show them what you are doing in return for basic labor. You said that you a sure that you are capable of doing DIY portions to me this implies that you have experience enough that you can mentor in this area. This could be a win-win situation if they are really good they could be a future partner or employee. You could offer to profit share with a disclaimer that there may be little to no profit.  

@Dennis Sprague  - I just flipped a house with very similar numbers, and I did a lot of the work myself to make it work (my rehab numbers would have been closer to yours or even higher if I didn't). 

In this price range, holding costs are usually pretty low, and you're likely to sell to an FHA buyer, which means you can't sell it to them for 90 days anyway. Don't let the naysayers discourage you. Add an extra month or 6 weeks to your timeline and make it work.

You'll find your first flip with amaze you with what you didn't know you didn't know, and your next one will be immensely easier. 

Good luck!

Jeff Copeland, Broker in FL (#BK3326487)
727-235-7988

70% rule gets you at 34k as max offer, thats a 14k difference from 48k. That is what @Randy Coldiron  @Will Barnard  is telling you. One thing to consider with DIY, you might not get it right on the first time, account for materials and time for that. Get ready to break even +/- 5k.

Jeff, thanks for the positive reinforcement and the good advice on the 90 day hold. Yes my hold cost will be around 600 per month tops and this 60 day flip can easily turn into a 90 day one very easily.

I am two weeks into mf first flip. Me and the contractor revised our scope of the project. I eliminated a few things in general and removed a lot of things from his to do list and got his total bill down to about $25,000. The things that I removed from the original list I will do as I have done all of them in the past. For instance; I demoed the whole place, removed one wall, three doors, painted the basement and large mud room and removed all flooring that needs to be removed, and by the weekend I should have the yard all cleaned up and ready to go. Oh and the neighbors are just thrilled that it will be made back into a SFH! So, so far so good but I am a long way from home.

Just got my numbers in today for the electrical (going from two meters to one and other electrical issues) and the plumbing( same as electrical), $10,000 total! ouch! Has to be done.  I just was not ready for that high of a price. One third of the budget gone in a wink and nothing will even look any better. Oh well, new  updated plumbing and electrical will be a selling point....Right?

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