1st Flip Any Advise?

5 Replies

Hi i’m working on my 1st
Flip in Belleville Nj. The asking price is $155,000 and the wholesaler who is also an agent says the ARV is $290. After running comps I noticed the ARV is between $240,000 and $250,000. I’ve done research on the area to see if there is a market of buyers in general which there is because there is 4 months of inventory supply and the style, br/ba, year built all within a mile. I plan on offering $140,000. Once accepted at his price I will be in at $140l, selling for at least $240,000 and putting in $50k including rehab cost, purchase/selling cost and 6 months of holding cost I like being conservative. I’ve received buds from 2 contractors and picked the best of the two based on references and fair prices, and have a realtor confirming the ARV with me over the next 24 hrs
I already have money coming up with at least 80% and 20% i’m committing to the deal. And raising private money for closing cost and 6 months reserves for holding cost.

Are there anythings I should be looking out for prior to purchasing, working with contractors, selling/marketing, or anything-else?

First thing - wholesaler numbers are usually not true.

Second - your biggest risk is in the construction budget.  

Make sure that your exit numbers are correct.  Good luck, the first project is usually a learning experience.

Only on my first two flips right now - couple items are fresh that I’m experiencing myself, but nothing revolutionary. 

• have more reserves on hand than you think you need for inevitable overages. 

• make sure scope of work is extra detailed and all documented and agreed upon. Hopefully saves headaches down the road. 

• signed agreement on contract of a clear completion date - otherwise enforce some sort of penalty for work that isn’t completed by the deadline. 

you would be all in at 190k plus all 3rd party costs? 

The margin sounds pretty slim 

You are at around 80 to 85% of the arv at 240k 

My view:

Your offer of 140k versus a 155k LP.  

Call it 155k to see if numbers even work on the higher end.

50k rehab cost, add 10% reserve minimal= 55k

You're now in at 210k

List it at 245k and say it sells for that

= 35k Gross Profit

- 6% commission ($14,700)

- ±2% closing cost ($4,900)

= ±$15,400 Net

15,400/210,000 = 7.3% return.

I know I am missing several operations and fee items, but that's unique to each individual.

This can be viewed as a terrible return by some people, but if you do 4-5 of these a year, it starts to replace your income.  On a 50k rehab, I have never ran into it holding a house longer than 2-3 months.  I understand you want to be conservative and say 6 months, but as long as your stay on top of your contractor and he completes work to an agreed deadline (which I hope isn't spread across half a year, any GC that will be spending half a year on a 50k job, is more than likely running a dozen+ other jobs meaning less attention on yours).  Most GCs want to get in and get out quick.  More time = more money and doesn't always mean better quality.  There's a balance.

how much you going to lose of that 15k to taxes?

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