First Flip Under Contract- Made About $11k

Rehabbing & House Flipping
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First Flip Under Contract- Made About $11k

Michael Murray
Investor · Westwood, MA · Member since 2015 · 6 posts · 11 votes

Hello Everyone and Happy New year!

I am a young investor with a couple of buy and hold deals under my belt and just completed and sold my first rehab deal in Rhode Island. I made much, much less money than I had anticipated. I had planned on making around 30 and ended up with about 11 in profit. I learned some very important lessons. The most important being:

-Make sure you have a GREAT realtor. I feel the realtor I was working with purposefully overstated the ARV and almost as soon as I re-listed he began beating me up on the price constantly. Plan so that even if you sell at the lower end of your comps you still make money!!!

-Rehabs always take longer than you expect, remember that in your holding cost analysis. 

-Don't list the house until everything is finished and the house is totally cleaned out of all your crap. 

-Pay close attention to detail on your finishes, my painter left some areas on the trim too thin so that the old wood bled through a little- big detractor from finished look of the house. 

Maybe these tips will help someone a little. I have the house under contract and even made a little money. I also have a 3 family under contract in Providence that I rehabbed in 2013 with my father. Wasn't planning on selling it but we could use the money to grow our business and have quite a bit of equity in it. I will be looking for another rehab in the Boston area to start 2016 on a good note. Look forward to networking and possibly working with some of you.

Mike

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Ann Bellamy
Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
10y

Congratulations on doing this well to start with, you've made a great start!  Many new investors lose money on their first flip, so you not only gained knowledge, but got paid to learn.  Not a bad way to go.

You'll find that 99% of real estate agents overestimate your ARV. Whether it is intentional or not is the subject for a different discussion. But their initial goal is to get you to buy the house to start with. To do that, they show you how much you will make because the house is worth $xxx when finished. The comps they pull will document that. But if you dig deep, you'll find they skipped over the house on the same street with the same square footage that sold for $30K less than they want to show you. Why? It doesn't support what they want the ARV to be. So they will dig for houses that support the higher price. No matter that it has a 2 car garage and yours doesn't. No matter that it's in a nicer neighborhood than yours and yours is on a busy street. No matter that it's 300 SF larger than yours.

After you've bought the house, then they will go to work getting you to list it for it's real value and tell you the market changed.  

Don't get me wrong, not all agents do this.  Especially those who deal with investors all the time.  They understand that they will get repeat business from investors if they are straight and sell quickly.  But most agents don't know how to work with investors, or don't want to, or don't like to.  

So learn to pull your own comps. If you can't, ask the agent for something specific, not a CMA where they can cherry pick the comps. Ask them for something like: all sold properties with a 1 mile radius between 1700-2200 SF for the last 6 months. Tell them don't leave anything out, even the crappy houses. Include all photos. Also ask for all active and under agreement houses for the same criteria. This is your competition when you put it on the market. If school district matters, include that restriction.

Experienced investors almost never rely on the agent for an estimate of ARV. If it is a specialized neighborhood, they might consult with the top agent in the area, and give them the listing if they are really good. But always be prepared for the low end of the comps, there are lots of factors in play.

The rest of your comments are right on, and all experienced flippers know them.  Glad you only took one deal to come to that realization.  Now onward and upward, good for you!

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  • Mark Keller
    Real Estate Agent · Milford, MA · Member since 2014 · 14 posts · 5 votes
    10y

    Happy New Year to you as well, Mike! I am a new investor in Milford MA and am considering deals in RI since it is relatively close to me. Love to stay in touch with you as things progress for both of us.

    Mark

    0Reply
  • Ann Bellamy
    Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
    10y

    Congratulations on doing this well to start with, you've made a great start!  Many new investors lose money on their first flip, so you not only gained knowledge, but got paid to learn.  Not a bad way to go.

    You'll find that 99% of real estate agents overestimate your ARV. Whether it is intentional or not is the subject for a different discussion. But their initial goal is to get you to buy the house to start with. To do that, they show you how much you will make because the house is worth $xxx when finished. The comps they pull will document that. But if you dig deep, you'll find they skipped over the house on the same street with the same square footage that sold for $30K less than they want to show you. Why? It doesn't support what they want the ARV to be. So they will dig for houses that support the higher price. No matter that it has a 2 car garage and yours doesn't. No matter that it's in a nicer neighborhood than yours and yours is on a busy street. No matter that it's 300 SF larger than yours.

    After you've bought the house, then they will go to work getting you to list it for it's real value and tell you the market changed.  

    Don't get me wrong, not all agents do this.  Especially those who deal with investors all the time.  They understand that they will get repeat business from investors if they are straight and sell quickly.  But most agents don't know how to work with investors, or don't want to, or don't like to.  

    So learn to pull your own comps. If you can't, ask the agent for something specific, not a CMA where they can cherry pick the comps. Ask them for something like: all sold properties with a 1 mile radius between 1700-2200 SF for the last 6 months. Tell them don't leave anything out, even the crappy houses. Include all photos. Also ask for all active and under agreement houses for the same criteria. This is your competition when you put it on the market. If school district matters, include that restriction.

    Experienced investors almost never rely on the agent for an estimate of ARV. If it is a specialized neighborhood, they might consult with the top agent in the area, and give them the listing if they are really good. But always be prepared for the low end of the comps, there are lots of factors in play.

    The rest of your comments are right on, and all experienced flippers know them.  Glad you only took one deal to come to that realization.  Now onward and upward, good for you!

    7Reply
  • Ryan Billingsley
    Investor/Realtor · Wentzville, MO · Member since 2014 · 846 posts · 431 votes
    10y

    @Michael Murray

    Congrats on your first flip!  Many people lose money on the first one.

    Best way to learn is by doing and now you have that under your belt to make the next one more profitable!

    0Reply
  • DONALD KUCZINSKI
    Investor · Upton, MA · Member since 2014 · 39 posts · 16 votes
    10y
    Originally posted by @Mark Keller:

    Happy New Year to you as well, Mike! I am a new investor in Milford MA and am considering deals in RI since it is relatively close to me. Love to stay in touch with you as things progress for both of us.

    Mark

     Mark, you might want to keep an eye on Webster, MA area as well. Definitely up and coming, but be aware that prices have increased dramatically there just in the past year. Great for flips or buy & hold, with spring just a few months away. Webster Lake remains a huge draw and the town itself has a lot to offer.

    0Reply
  • John Valentine
    Rehoboth, MA · Member since 2014 · 10 posts · 4 votes
    10y

    Congrats on the deal, Mike! Well done.

    0Reply
  • Wayne Freeman
    Wholesaler · Pawtucket, RI · Member since 2014 · 54 posts · 15 votes
    10y

    What city did you do this flip in?

    0Reply
  • Scot Howat
    Investor · Hoffman Estates, IL · Member since 2014 · 434 posts · 185 votes
    10y

    Congrats!  That's amazing that you actually made money on your first deal.  That's not the norm. 

    Post some pictures please!

    0Reply
  • Eric Brandt
    Investor · Gatineau · Member since 2015 · 19 posts · 10 votes
    10y

    Great work Mike! 

    On to the next property!

    0Reply
  • Michael Murray
    OP
    Investor · Westwood, MA · Member since 2015 · 6 posts · 11 votes
    10y

    Thanks for the support everyone. BP seems like a great site.

    Before:

    After:

    2Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    10y

    Great deal

    0Reply
  • Michael Noto
    Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
    10y

    congrats @Michael Murray  

    What's next?

    0Reply
  • Michael Murray
    OP
    Investor · Westwood, MA · Member since 2015 · 6 posts · 11 votes
    10y

    Thanks @Michael Noto looking for my next project in the Boston area

    0Reply
  • Lydia S.
    Real Estate Agent · Albuquerque, NM · Member since 2015 · 542 posts · 193 votes
    10y

    @Michael Murray

    Looks great!  Thanks for posting and I hope your New Year is rewarding.

    0Reply
  • Chad Duval
    Rental Property Investor · Boston · Member since 2014 · 103 posts · 21 votes
    10y

    Looks great @Michael Murray!

    0Reply
  • Chuck Brickman
    San Antonio, TX · Member since 2009 · 86 posts · 13 votes
    10y

    Give yourself a pat on the back and celebrate making 11k plus acquiring some great insight. I've only been flipping/renting for about 5 years and each time I do it I learn something new. If you can walk away with 10k when everything is said and done I always consider that a success...maybe it could have been more and next time you'll make adjustments and carry on.

    I also agree with the previous thread...you make your money when you buy. No one looks out after your interests like you do...trust but verify. Don't take anything at face value...look for the money stream.

    I frequently find most realtors and wholesalers that I deal with offer a high ARV and low rehab costs...I get it...time is money for them and we all are in business to make money.

    You mentioned that the rehab time and costs were exceeded...that comes with experience too...and even with experience it happens. There are alot of measures you can take to minimize these types of risks. The greatest advice I could give is to find a good mentor...they are invaluable.  

    0Reply
  • Brian Pulaski
    Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
    10y

    Do you have a spreadsheet or something along those lines showing where you either went over budget, or where the difference between the 30,000 you thought, and the 11,000 you made? Your best bet is to visit this and learn. Did you go over on some of your scopes, and if so, pay extra attention to this on the next round.

    If it stems from an under valuation by a realtor, it sounds like you may want to do a little more research on house values.

    Sounds like a learning experience with a profit of 11,000! Congrats, from a CT investor!

    0Reply
  • Rob Cee
    Lebanon, NH · Member since 2012 · 258 posts · 87 votes
    10y
    Originally posted by @Ann Bellamy:

    Congratulations on doing this well to start with, you've made a great start!  Many new investors lose money on their first flip, so you not only gained knowledge, but got paid to learn.  Not a bad way to go.

    You'll find that 99% of real estate agents overestimate your ARV. Whether it is intentional or not is the subject for a different discussion. But their initial goal is to get you to buy the house to start with. To do that, they show you how much you will make because the house is worth $xxx when finished. The comps they pull will document that. But if you dig deep, you'll find they skipped over the house on the same street with the same square footage that sold for $30K less than they want to show you. Why? It doesn't support what they want the ARV to be. So they will dig for houses that support the higher price. No matter that it has a 2 car garage and yours doesn't. No matter that it's in a nicer neighborhood than yours and yours is on a busy street. No matter that it's 300 SF larger than yours.

    After you've bought the house, then they will go to work getting you to list it for it's real value and tell you the market changed.  

    Don't get me wrong, not all agents do this.  Especially those who deal with investors all the time.  They understand that they will get repeat business from investors if they are straight and sell quickly.  But most agents don't know how to work with investors, or don't want to, or don't like to.  

    So learn to pull your own comps. If you can't, ask the agent for something specific, not a CMA where they can cherry pick the comps. Ask them for something like: all sold properties with a 1 mile radius between 1700-2200 SF for the last 6 months. Tell them don't leave anything out, even the crappy houses. Include all photos. Also ask for all active and under agreement houses for the same criteria. This is your competition when you put it on the market. If school district matters, include that restriction.

    Experienced investors almost never rely on the agent for an estimate of ARV. If it is a specialized neighborhood, they might consult with the top agent in the area, and give them the listing if they are really good. But always be prepared for the low end of the comps, there are lots of factors in play.

    The rest of your comments are right on, and all experienced flippers know them.  Glad you only took one deal to come to that realization.  Now onward and upward, good for you!

     This is a very good post by @Ann Bellamy. I invest with hard money brokers who lend my money out on flips and other projects. And you can see this same dynamic with some hard money brokers. They will push the ARV/value or have their in house appraisal push the ARV/value because they want to make the loan. They do not get paid and make the points unless they fund loans. They might fund less loans if the were more conservative with values. So as an investor in hard money loans you have to be very wary of this practice of pushing values. Because with a default in a market downturn a hard money investor can get hurt bad on a loan where the value was pushed and bad comps used.

    0Reply
  • James MasottiPro Member
    Rental Property Investor · Washington Township, NJ · Member since 2015 · 1k+ posts · 976 votes
    10y

    I'm late to the game on this but, congrats @Michael Murray. I'm working through trying to buy my first flip down here in South Jersey. Would love to hear more details about your process and timeline, would you mind if I reach out and set up some time to discuss?

    Podcast Guest on Show #312
    0Reply
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