Would you Flip or use the BRRR if you were me?

Rehabbing & House Flipping
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Would you Flip or use the BRRR if you were me?

Jasmine B.
Investor · Phoenix, AZ · Member since 2016 · 46 posts · 17 votes

Situation:  I purchased my first flip 2 weeks ago in the (Houston) Spring, Texas area. The numbers are below. I need some advice. Would you Flip or Hold in order to rent it out? (I used a hard money lender so I'd definitely re-fi if I decide to hold). My loan was in the amount of $188k @ 13% ($39k in Escrow for repairs) 

I stand to make $15k conservatively in profit if I flip. If I hold, I will have a great amount of equity and monthly cash flow.

Flip Numbers

Appraisal: $269,000

Acquisition Cost: 169,000

Repairs: 39,000

Holding Period: 3 months conservatively

Closing Cost at Sell for Retail: $2700

Rental Comps for the area are $2,100

Any other numbers you need to answer this question let me know :-) 

Thanks!

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Don Nelson
Rental Property Investor · Buena Vista, CO · Member since 2015 · 101 posts · 47 votes
10y

@Jasmine B. - what's your after repair value (ARV)? You said you'd have equity. How much? Three months isn't much time for a flip unless you have bored contractors who only work on your project :). That's usually not the case. Estimating $15K for profit scares me. I would never buy a property expecting a return like that. All you need to do is find out a sewer line is broken and up to $10K of that is gone. Be careful - don't want to scare you, but from your numbers it sounds a little tight.

Can you fill me in on what it's worth after you're done?  Then I'll try to help...

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  • Don Nelson
    Rental Property Investor · Buena Vista, CO · Member since 2015 · 101 posts · 47 votes
    10y

    @Jasmine B. - what's your after repair value (ARV)? You said you'd have equity. How much? Three months isn't much time for a flip unless you have bored contractors who only work on your project :). That's usually not the case. Estimating $15K for profit scares me. I would never buy a property expecting a return like that. All you need to do is find out a sewer line is broken and up to $10K of that is gone. Be careful - don't want to scare you, but from your numbers it sounds a little tight.

    Can you fill me in on what it's worth after you're done?  Then I'll try to help...

    3Reply
  • Jasmine B.
    OP
    Investor · Phoenix, AZ · Member since 2016 · 46 posts · 17 votes
    10y

    ARV: $269,000

    I have a GC who will start on Thursday and be done in 3 weeks. He's only working on my property.

    Also, for me personally $15k is great for my first deal. All of my calculators are showing a profit of $21k but I like to be conservative and I'm assuming something will go wrong.

    @Don Nelson 

    3Reply
  • Trey Watson
    Investor · Phoenix, AZ · Member since 2015 · 191 posts · 152 votes
    10y

    As far as a hold, you'll likely have trouble renting a home at 2700 in spring (not saying it cant be done but i think you'll have a tough time.) Since Oct 2015 there have been 130 homes that have rented for 2500 or more within MLS area 10,12,13,14 which covers spring and also some parts of The Woodlands, cypress, and humble.

    I did some quick math- I'm interested to know how you come up with 15k in profit...I think there is a little more room in that deal, closer to 20 or so. Its a 77% deal (Purchase+repairs) which is a decent deal. 

    15k using hard money in that price range is pretty common. If your down payment is only 50 or 60k though, the roi is great. Don is right though, the margin for error is slim enough to where a major problem like a pipeline would make the deal...not a deal.

    @Don Nelson Im not sure about the market in colorado, but in Houston those are decent margins. Im confident I could sell this deal to most of my investors who are flipping in spring (Assuming those numbers are accurate and there are no quirks about the house such as adjacent to commercial or on a main road.)

    2Reply
  • Jasmine B.
    OP
    Investor · Phoenix, AZ · Member since 2016 · 46 posts · 17 votes
    10y

    @Trey Watson Thanks Trey for your feedback. $2,700 is the amount I'd pay at closing if I sell it. $2,100 would be the rent. It's a 3200 sq ft 4bd with study & pool. All new everything.  

    And yes I'm hoping for a $21K profit but I'm telling myself $15k incase I have to hold it another month, the rehab goes over budget, or I have to pay Buyers closing cost, etc 

    0Reply
  • Dana WhickerPro Member
    Investor · Fernandina Beach, FL · Member since 2014 · 557 posts · 374 votes
    10y

    Hi Jasmine, What do you want to do after this deal? What are your goals long and short-term? How is your bankroll? Will the $15-20k that you make on this significantly increase your bankroll or will this be a smaller, an incremental increase? The answers to these questions will help in giving you advice.

    Here are some quick thoughts. These are things I've been reminding myself. Flipping is a lot of work. BRRR, if you have a good property management method, is a LOT less work long term.

    I've been doing flips that have a lot less ARV value than yours. I am doing properties that have an ARV in the $90-$120k range. If I can't make $25-30k on these, then I rent and hold them. Any less than that is just not worth it.

    With all that said, $15k on your first flip is very nice. Congrats and best of luck to you!

    3Reply
  • Don Nelson
    Rental Property Investor · Buena Vista, CO · Member since 2015 · 101 posts · 47 votes
    10y

    @Jasmine B.,@Trey Watson - I agree, this deal sounds better than I thought.  My math is something like this: 169K purchase + $1500 closing costs on purchase, $2000 holding (utilities/insurance), I'm assuming a hard money loan so ~$20K in loan fees, $39,000 rehab, $2700 resale title costs, $7K to pay an agent a co-op on resale I assume? Total costs $241,000.  Sell for $269,000 - That's more like $28K profit.  That's right in line with what I'd be looking for.  But I'm not sure I know/understand all of your numbers.

    In any case, sounds like a tidy little flip to me!

    0Reply
  • Jasmine B.
    OP
    Investor · Phoenix, AZ · Member since 2016 · 46 posts · 17 votes
    10y

    @Dana Whicker After this deal I'd like to focus on SFR in the $90k-$150k range for Buy & Hold, Wholesale, and do more Flips. I'm beginning to entertain the idea of New Construction.

    80% of profits from this deal will be poured back into my business. The other 20% is going to my student loans! Thanks for the feedback!

    1Reply
  • Santos Collantes
    Investor · Houston, TX · Member since 2015 · 97 posts · 25 votes
    10y

    Congrats on the flip @Jasmine B.!

    0Reply
  • Winston Holloway
    Investor · Houston, TX · Member since 2016 · 14 posts · 2 votes
    10y

    @Jasmine Bailey I've been looking for a partner in the Houston market to build some quadplexes with...if you're serious about getting into new construction, PM me and/or let's get together and chat sometime.

    0Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    10y
    Originally posted by @Jasmine B.:

    @Dana Whicker After this deal I'd like to focus on SFR in the $90k-$150k range for Buy & Hold, Wholesale, and do more Flips. I'm beginning to entertain the idea of New Construction.

    80% of profits from this deal will be poured back into my business. The other 20% is going to my student loans! Thanks for the feedback!

     It sounds like you've answered your own question. Personally, I won't entertain flips that net me less than $30k when all is said and done, because finding viable houses in my market is very difficult and holding is so much more profitable long-term in my niche. But if you want to buy & hold, the range you mention above is (in my opinion) much more sensible than the house you've got, because rents have floors and ceilings and the ratio has a negative skew, i.e. the higher the priced house the less you obtain in rent per metric (square foot, price paid, etc). 3 $90k houses will probably gross $3000, while one $270k house grosses $2100. 

    Either way, it sounds like something workable based on your numbers, once you get out of that HML.

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  • Christian Sifuentes
    Flipper/Rehabber · Fair Lawn NJ · Member since 2016 · 382 posts · 87 votes
    10y
    Great information and I like your conservative approach on your first flip. The hands on experience will far outweigh the 15k over the next few years!! Congrats on taking action!
    0Reply
  • Charles Morgan
    Investor · El Paso/Socorro, TX · Member since 2012 · 365 posts · 75 votes
    10y

    It sounds like you have two great exit strategies in mind, flip if it makes sense, BRRR if flip doesn't make sense. I'm a big fan of BRRR! Good luck and learn a lot!

    0Reply
  • Robert Seltzer
    Rental Property Investor · Redwood City, CA · Member since 2015 · 51 posts · 12 votes
    10y

    Very good discussion on this entire thread.  I would like to comment on the rent and hold option.   I have two rental properties in Spring TX.   My analysis suggests that anything over $1500 a month, regardless of the property, will take much longer to rent.  When you cross the $2000 level you are into a segment of the market where many renters have the monthly cash flow to purchase.   A plan that takes your gains from a flip and applies the profit to the down payment for a property with better cash flow potential strikes me as the more conservative path.  Good luck!

    1Reply
  • Michael Delpier
    Investor · Houston, TX · Member since 2015 · 176 posts · 121 votes
    10y

    I also would sell. I base this on a few factors.

    1. as Robert said, rents over $2K in the Spring area take a little longer. But also the tenant in this price range does not stay that long.

    2. has a pool. This is a much better feature for a sale than a rent.

    2Reply
  • Kami S.
    Sugar Land, TX · Member since 2016 · 69 posts · 79 votes
    10y
    If it was my investment I would flip and sell and build momentum for more future BRRRR projects.
    1Reply
  • Nick Stoddard
    Investor · Overland Park, KS · Member since 2015 · 50 posts · 13 votes
    10y

    I know the property taxes are very high in Houston, have factored that in to

    Your buy and hold strategy?

    0Reply
  • Hassan Muhammad
    Indianapolis, IN · Member since 2014 · 100 posts · 18 votes
    10y
    Hannibal Pearson
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