Newbie Flipper Neeings Help With Analysis (Work Sheet Below)

24 Replies

Hi everyone

I'm doing some pre analysis on some houses and it seems to me things are a bit expensive especially in terms of materials and labor. I'm in the NJ market so that is to be expected.

I'm struggling with analysis mainly in trusting my numbers and actually finding numbers that work for me

-I've built in an safety net into my budget but don't know that it's enough

-I've assume some steep borrowing costs for myself being a newbie and not having a high income (5pts upfront and 15% interest lol)

-I'm struggling with picking the right number for a remodel. (I typically chose about $24-$34 per sq ft)

-MOST IMPORTANTLY - trusting comps that I'm pulling. I typically go on RedFin or Zillow but being that I've never done this before, I 'want to compare apples to oranges.

I've driven for dollars and have built a list of some potential addresses but now I need to figure out which one is a deal and which isn't. Should I be seeking to contact these people through the phone to see if they're interested in selling their home to an investor? Should I be sending letters? Should I contact a realtor? or Should I do the analysis first ?

Here is the data copied from excel that I use to do some of my analyses. If any experience flipper can share some knowledge and wisdom on the process, I would truly appreciate it. I can send the actual excel file through email if you want to see my calculations and assumptions.

Purchase Price $ 166,083.31  Year Built 1910
Realtor or Finders Fee $ -     Lot Sq Footage 0
Total $ 166,083.31     Sq Footage 1684
      Yearly Tax $ 10,000.00
Amount to be Borrowed $ 228,440.32     Bedrooms 3
Personal Cash Invested $ 35,216.66     Bathrooms 2
         
Pre-Inspections       Lip Stick $ 18.00
GC Quotes $ 700.00     Lip Stick Advanced $ 24.00
Lining $ 700.00     Standard $ 28.00
Inspection $ 600.00     Vandalized $ 32.00
Total $ 2,000.00     Big Gut Out $ 36.00
         
Cost of Money     Remodel Type Standard
Points (assuming 5pts) $ 10,000.00        
Broker Fee $ 2,000.00        
6 months Interest $ 17,133.02        
Lender’s Lawyer $ 1,300.00        
Total $ 30,433.02        
       
Closing at Purchase Potentially covered in points payment    
PurchaseTax $ 3,321.67 I assume 2%      
Title Work $ 1,000.00        
Total $ 4,321.67        
       
Construction Costs        
GC $ 47,152.00 I multiply sq footage of house by preset number  
Materials $ 10,000.00 Total Guess      
Misc (Permits, etc) $ 5,000.00  Guess      
Appliances $ 6,000.00  Guess      
Safety Net $ 15,000.00 is this enough or too much?    
Total $ 83,152.00        
       
Holding Cost        
6 month Property Tax $ 5,000.00        
6 months Utilities $ 600.00 I assume $100 per month    
Commercial Insurance $ 2,500.00 Is this needed?      
Total $ 8,100.00        
       
Closing Cost at Sale        
Tax $ 500.00        
Title $ 1,100.00        
Warranty $ 500.00        
Realtor Fee $ 19,750.00        
Total $ 21,850.00        
       
Total Costs $ 315,940.00        
         
ARV $ 395,000.00        
Net Profit before Tax $ 79,060.00        
Net Profit after Tax $ 51,389.00 Asumming 35% Capital GainsTax    
         
         
Minimum Required Return 25%        
Actual Return 25.0%        
         

Your numbers didn't format, so I honestly can't read any of it.

With that said, using a random $/SF number is very risky. I have not rehabbed a house for less $30/SF and that was with me doing a lot of the work on a basic new kitchen, new bath, paint, windows and cosmetics (what I would call cosmetics, no hvac, minor elec and plumbing, no siding, no roof, no real landscaping). I have spent as high as $65/SF on a house... wholesalers really need to know rehab costs, in my opinion.

Yeah that is one of my major concerns. I read the book called flipping blueprint which provided me with these presets but it bugged me as I know a new roof installment can go for 15k alone in my area. Just to be clear, I'm not a wholesaler. 

Trying to figure out how to do analysis with good numbers and inputs. Sorry you don't understand the worksheet, It isn't merging well with the platform. I'd be glad to have you take a look at it on excel if you wouldn't mind.

I hesitate to up the presets to high, as I include materials, safety net, miscellaneous and appliances separately.

Thanks for the input!

For the ARV, find a good real estate agent who knows the area and ask him/her to pull comps and provide you an ARV.

For rehab costs, learn how to create a Scope of Work, put one together and then bring in a GC or subcontractors to bid on it line-item by line-item.

That will get you accurate numbers for ARV and rehab, at which point you simply need to figure out your fixed costs.

Once you have accurate numbers for all those, plug them in:

Max Purchase Price = ARV - Rehab Costs - Fixed Costs - Desired Profit

Your loan costs seem high. Many hard money lenders will do 10.5% plus 2-3points for newbies at 70-75% of purchase price. You will need to figure out basic costs for kitchens and baths and flooring and paint in your area to run accurate numbers. Do you have a contractor you are ready to deal with? Ask them how much for complete cosmetic remodel. I recommend against major repairs or reconfigurations in your first few flips.

Focus on actually finding the deal with ball park numbers. If you have a deal in hand, it’s not too hard to find the money and/or an experienced partner if you need them.

Mailing, door knocking, and calls are a good start. Property Radar or similar can help you find contact info on owners.

Go to a REI group and network with other investors who know more accurate numbers for your locale. They are pretty good at giving feedback and great suggestions on options and plans you may not yet have considered.

Good luck!

@J Scott Will definitely put that into practice, thank you for the input. You sir are a LEGEND! your book on flipping was one of the first I've read which made me want to get into house flipping as means to kick start my RE career. Thank you for all  that you do!

@Maggie H. That is awesome advice. Could definitely reach out to some of the people from meet ups I've gone to. Do you think that property radar is the best to get owner and seller info? That is actually one of the battles I'm facing. I have a list with hundreds of properties that are just addresses and I'm not too keen on the door knocking thing. And I wasn't sure that I had enough to do a mail campaign. 

And also how did you find a good contractor to work with?

Thanks for your time!

Door knocking can be a problem, as many good properties to try to buy are non-owner occupied (tenants), so they are not the ones with who you need to speak.  Depending on how much you want to spend, PropertyRadar or similar with provide you with address/phone number/additional properties for owners. You can even run searches based on equity or owner location and it will generate downloadable lists for you. There are many such services, but I found PR to have decent enough info for my needs.  

Remember, it's all about the numbers: The more mailings or calls you do, the more interested parties you will reach the more offers you can make, the more offers get accepted!  If you get 3 percent call backs and offer on 10% of those calls, you must send out hundreds or thousands of letters to get 3-4 deals/year!

Hi @Maggie.H,

Just want to thank you again for answering my questions. It actually helped me tons. I’m in the process of learning more on rehab and construction components and trying to get a good example of a good comprehensive GC Bid Form.

Do you suggest I look for interior designers, my only concern is that I would want something that is appropriate to the market to not risk over/under rehabbing anything.

Lastly in terms of not looking for anything too drastic, what would you consider as a good type of flip to get into. My market is a bit expensive so, I’m a bit drawn to the bigger rehab projects to actually get a good spread.

Pierre

@pierre 

@Pierre Decoste

You can hire an interior designer, but that will cut into your profits significantly.  Go look at the open houses and model homes in your target area.  That will give you a good idea of what is popular in your area.  Keep track of what the houses that ARE SELLING look like and how those were done.  That will give you a better idea of your market than an interior decorator.  

You need to find your niche.  Stay well within your price range,but after a house or two,you can stretch your comfort zone a little to expand your knowledge base.  It will just take a few goes to see what works best for your resources, business model and area.   

Do you have a partner?  Working with an experienced flipper is the best way to learn what works and find other work arounds that will grow your skill set. 

@Pierre Decoste do I see $700 allocated towards GC quotes? If i'm interpreting that correctly, let me just take a moment to applaud you for actually PAYING for a GC's time and effort in providing you with good estimates for your repair budgets!

The old adage "You get what you pay for" also applies to estimates: so why would anyone want a "free estimate"? Especially when you are a pass/fail on the numbers alone as an investor.

Now, that being said, it may not be necessary to just pay cash for the estimates. In the remodel and restoration business I worked in for 15 years, I would routinely give free line item estimates to past clients that had actually contracted work with me. But if I didn't know them... I charged a minimum of $155 or 2% of the estimate total (either amount being deducted from their contract total if we moved forward with the rehab). So in that way ALL my clients get free estimates.

I use fairly sophisticated estimation software to prepare the estimates, and am able to produce various reports such as subcontractor budgets, all materials including cost, number of hours needed, scheduling all for the same 2% charge. Lenders really liked these estimates. Make sure you are specifying to the GCs you are calling that you need a "detailed, line item estimate". No point in offering to pay for an estimate only to get some chicken scratch on the back of a bar napkin!

I agree with a lot of the others here. Finding an agent who can help you with comps is critical to see what things are going for in the area as well as how they were finished through the pictures. I know Zillow and Red Fin won't have the pics a lot of times after it sells. It seems like you have a general knowledge of what things cost but actually talking to contractors and getting prices is going to be your best bet. I would first recommend going to local REIAs to try to meet realtors and contractors who are investor friendly. People here are usually willing to share info. and help out.

Suggest you actually get quotes from contractors.  A few things I can make out:

Pts(too high), brokerage(2K-too low), 1910 vintage home-red flag, plumbing, structure, termite, fungus, electrical, foundation ..... 

I expect the interior renovation to be 100/sf min for 1 story home and appliances, wiring to be extra.

Landscape ???

@Sam Shueh did I read that correct... $100/SF interior renovation with wiring extra, minimum? I had an 1152 SF house I rehabbed, I couldn't imagine spending $110-120k minimum on the interior rehab alone. If the OP crunched his numbers using $100/SF minimum, he would never land a deal... Numbers need to be real, not just figure a random $/SF.

@Maggie H. I think I should definitely stick to some cosmetics or advanced cosmetics at the most for my first couple of deals to be able to get done with the rehabbing process quickly as it's becoming apparent to me that that can be a major set back for me from a Project Management stand point especially with it being my first time. Going to get in touch with realtors to see if I can find a property meeting this criteria in a good market. Thanks for your help!

@Sean Ridlon I definitely budgeted for GC Quotes lol I figure this would show how serious I am and also be a good way to attract reputable contractors who aren't in the business of wasting time. I want to be in charge of purchasing materials, so I'll need to do some research on other specialty stores rather than sourcing everything through Home Depot and Lowe's.Next Challenge I Guess. I'm thinking checking out prices of the materials used in comps in my areas may help me in putting together an abstract Scope of Work. Thanks for the input!!

@Sam Shueh Definitely forgot to budget in Landscape, the properties that I'm looking into shouldn't need too much so I figure I may add 2-4% of ARV to cover that. Plumbing, Structure, Fungus etc. should all be accounted for in my GC Bid. Please be advised that the numbers above are mock and not an actual property. I'm looking to get a good feel for the numbers in the items to include on my analysis. I disagree on the Interior design costs you suggested, I would definitely not spend nothing near $100 per square foot on the whole project, lets not even talk about just the interior!!! Margins are a bit tight on my side.

@Brian Pulaski I increased those preset numbers to those below. They seem to be more appropriate. You mentioned not using those at all, keep in mind that I add about 15000 in permit, miscellaneous and materials and another 15000 for a safety net and I require 25% return on my flips. Which gives me a good spread. I think they allow me a way to get my pre-analysis work done quickly before my due diligence period.

Lip Stick $ 28.00
Lip Stick Advanced $ 35.00
Standard $ 42.00
Vandalized $ 48.00
Big Gut Out $ 52.00 

I think you are getting there.  The$100 includes everything not interior sorry  that is for west coast rehabit. 

@Pierre Decoste if you can add $30,000 to your bid, and also shoot for 25% of ARV for profit, you might find it tough to get deals. If you do land them, you will make a ton of money. I can tell you in my current market I have been putting small amounts of cushion (think 5% or ARV) and crunching my numbers very tight, and really only shooting for 10-15% profit and every single offer I throw out gets outbid. People are paying top dollar for these properties right now.

@Brian Pulaski Wow that is scary! I hear that flippers always target at least 20% for profit and being new i feel that I should budget for more to give myself some room. Any surprises may can quickly turn 10-15% to a break even or even a loss, but I'm assuming your experience allows you to play with those numbers. I'm hoping with the right partners I can get some cash deals at those numbers. What markets are you flipping in? 

I flipped in central CT and made good money. I am now in Orange County NY.

At the end of the day having contingencies is safe and good. However having an "extra" $30,000 on your spreadsheet on top of already conservative numbers if a deal sticks you stand to make a lot of money, from my experience no deals will likely stick.

I calculate down to the dollar, leave some fluff (think a couple thousand) and plan for $20-30k profit on $175-300k ARVs. Crunching numbers like this, I have been beat out by other investors 10 times or so.

Don't let me discourage you. Being conservative is Smart, but it's a balance between too conservative and too aggressive.

Being too conservative is probably something that I’m going to have to see if that’s truly a trait of mine by making offers and seeing where I bet. I’d rather have a great deal than a loss on my first one. The market I’m looking at isn’t as hot as the one you mentioned, already it doesn’t seem that way so hopefully this is something in my favor.

How are you going about finding deals? Realtors, wholesalers, MLS?
Have you done any direct to seller marketing ? Wondering when to get into that myself.(thinking after my first flip)

Auto correct was awful on the last one “get” instead of “bet” and “at least” instead of “already”. Lol

I look at MLS, any FSBO whether on CL, Zillow etc. I drive and find FSBO, and note distressed houses and send them mailers. I bought a local list and sent mailers to them. I am on a bunch of wholesaler lists, but have only ever had 3 or 4 houses in my area show up and none were deals I could make work. the good news is new houses come up for sale every day! I think your definitely on the right track for starting out. Have a handle on the numbers and you help your chances of having a successful first flip!

@Pierre Decoste , listen to BiggerPockets podcasts show 24 and show 26. They have some good advise for finding distressed properties and how to understand some of the numbers.

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