My First Flip !!

My First Flip !!

Developer · Houston, TX · Member since 2008 · 488 posts · 121 votes

I'm starting this thread because I am going to keep a running update on my first flip.

Today I have got the OK for all the funding I will need for my 1st home purchase / flip !! :cool:

I'm talking with a few wholesalers looking for something under $80k that needs minor work - nothing structural or foundation.

I'm meeting with a mortgage broker this week to get pre-qualified for the loan.

Now all I need is HOUSE to come my way...but I do want to have all my ducks in a row.

Question: A friend of mine told me you can not purchase homes from a wholesaler with a conventional mortgage loan. Is this true? I don't see why you couldn't.

Keeping my fingers crossed!! I'll keep you guys updated

Danny

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Real Estate Investor · Alpharetta, GA · Member since 2010 · 415 posts · 484 votes
15y

As with any investment, you need to be very careful here. I do not like that you're walking properties without having a contract of some sort in place. How do you even know that they have a lock on the property?

I have a pretty good idea who you're using (NetWorth Realty, correct?). I am not in any way saying that they are shady, because I know nothing about them as a company. The president of the company in Houston is a licensed, active broker, and he has a stable of agents working under him. So that's a plus; at least you're dealing with someone other than your typical bird-dog.

However, here's a look at one of the "deals" they currently offer, a house located at 3816 Brandt Street. They say the ARV is $275,000 and that the cost to remodel is $45,000. With their asking price of $165,000, that leaves a profit "potential" of $65,000, according to them. We all know that's baloney, though, since there are usually other considerable costs in selling a house.

Since I am not in Houston, I can't say what the house is really worth fixed up, but I'll wager it's not $275,000. While I would not stake my life or reputation on a Zillow.com value, this site says the house is worth $224,000 -- and Zillow is usually high, not low by 20%. So that's another number that I would question.

Lastly, they are offering this house as a deal at $165,000, when it was on MLS recently for $175,000, then dropped to $149,900 with the listing removed. So, no takers at $149,900 as a listed property, but a deal at $165,000?

It's just not adding up for me.

I am not suggesting that people don't make money buying properties from wholesalers. I am sure many of them do. But, in my experience, I have never, ever seen a wholesaler give real world numbers with respect to the true ARV or repair cost, and I've caught many of them trying to sell properties that they don't even control. It always made me laugh to see a wholesaler offer me a "deal" that was $20,000 higher than the property was currently listed on MLS.

That just goes to show that some wholesalers -- not necessarily NWR, of course -- rely on lack of buyer knowledge to make their business work.

As with any investment, caveat emptor.

See this reply in the discussion

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  • Developer · Houston, TX · Member since 2008 · 488 posts · 121 votes
    15y

    Here is my finished product:

    http://search.har.com/engine/11506-Canyon-Trail-Dr-Houston-TX-77066_HAR6528940.htm

    Thanks BP Nation! Lets hope for a quick sale!

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    15y

    Danny -

    Looks fantastic!!! Congrats...

    In fact, looking through the pictures, there was absolutely nothing that stood out where I thought, "I'd have done that differently..."

    Other than staging it, that is...though hopefully it won't be necessary...

    Good luck on getting a quick sale, and do me a favor, stay away from my market... :D

  • Developer · Houston, TX · Member since 2008 · 488 posts · 121 votes
    15y

    Thanks!

    I'm very pleased with the outcome. I knew there would be a large learning curve on this first one. I would said the biggest mistake I made on this deal was using a GC. I over paid my GC and did more managing on my end than I needed too. I won't be using a GC anymore.

    Good news - We've had 2 showings today, and one is writing an offer this weekend! We'll have something in writing by Monday. 3 days on the market and they're already submitting offers.... My only question is:

    Did I list it too low?

    Have a great weekend guys!

    Danny

  • Rehabber · Powhatan, VA · Member since 2011 · 190 posts · 21 votes
    15y

    I plan on listing below the market. Everyone says you make your moeny on the purchase. I will gladly list low to sell quickly. I will make good moeny and I will be availabel to move on to my next house!!

  • Real Estate Investor · Chicago, IL · Member since 2011 · 8 posts · 2 votes
    15y

    Awesome thread, Danny. I learned quite a bit reading it. I may skip the GC and manage my first deal myself.

    The house looks great. I wonder if you could have gotten a few more bucks out of it.

    Good luck with the sale and your future deals!

  • Residential Real Estate Broker · Colorado Springs, CO · Member since 2008 · 100 posts · 4 votes
    15y

    Great thread Danny and congrats on your first flip. I'm actively looking for my first flip as well.

    Can you give me an idea of how much time you spent at your property managing the construction yourself? I hold a full time job and would like having a bit more control of the construction by managing it myself but I feel I may be pressed for time with a 9-5.

  • Real Estate Investor · Houston, TX · Member since 2011 · 33 posts · 3 votes
    15y

    Longtime "lurker," first time poster; I registered to post in this thread.

    Danny,
    I tried to follow your three deals posted in this thread but got lost in some of the numbers and operational details. I ran some numbers based on the listing you provided and it looks like the comps are coming in around $124K~$128K.

    If I recall the deal you bought at 109K and 20K rehab; after reviewing the numbers, you are pretty close to break even.

    Am I missing something?

  • Developer · Houston, TX · Member since 2008 · 488 posts · 121 votes
    15y

    Your numbers are off a little bit:

    Purchase Price: $79,702
    Rehab cost: $31,913.94
    Cost of money: $1,449
    Holding cost: $730
    Estimated selling cost: $7,000

    Total Expenses: $120,796

    ARV: $137,000
    Less Total Expenses: $120,796

    Estimated Gross Profit: $16,204

  • Real Estate Investor · Member since 2010 · 12 posts · 0 votes
    15y

    very informative thread.

    I was wondering about the downside of using an FHA Rehab loan on something like this (1st time purchase) ? on an extended sale timeframe, it is probably safer from the point of view of the cost of money.

    anyway, best of luck to you, house looks great.

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    15y
    Originally posted by Danny Day:

    Estimated selling cost: $7,000

    First of all, congrats on the deal!

    Can you break down your expected selling costs for this deal? This is the one area where I would have expected a higher number...

  • Real Estate Investor · NowWhere, WI · Member since 2009 · 135 posts · 25 votes
    15y

    Just spent 20 mins reading through the entire post. Good stuff here. Congrats Danny! Let us know the final outcome.

  • Real Estate Investor · Houston, TX · Member since 2011 · 33 posts · 3 votes
    15y
    Originally posted by Danny Day:

    ARV: $137,000

    Thanks for the extra detail; enjoying the thread especially since we are in the same market. Wondering how you arrived at ARV? Looking at the comps its slightly less than what I derived.

  • Specialist · Cleveland, OH · Member since 2011 · 1k+ posts · 852 votes
    15y

    You can buy it, but you will need to pay for the contract outside of closing, the lender will not finance the contact, unless the contract holder gets paid as a third party payout. This would be done with an option or a lien.

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    15y
    Originally posted by MANUEL VALBUENA:

    I was wondering about the downside of using an FHA Rehab loan on something like this (1st time purchase) ? on an extended sale timeframe, it is probably safer from the point of view of the cost of money.

    The big downside is that, with an FHA loan, you would have to live in the property for 12 months as your primary residence before you can resell it.

    I believe Danny is trying to get this rehabbed and sold as quickly as possible...

  • Developer · Houston, TX · Member since 2008 · 488 posts · 121 votes
    15y

    J - Good post. You're right, trying to get out as fast as possible!

    Xavier, when I pulled my comps 2 weeks ago, my broker was telling me I was crazy for listing it so low at $137,000.

    My price is based on price per sq. foot on the comparables as well.

    Open house this Sunday. We'll see what kind of traffic we get. I've got a sign rider that says "OPEN HOUSE SUNDAY" on the listing.

    Lots of interested people stopping by. The mail lady, the neighborhood constable, and a few others.

    Danny

  • Real Estate Investor · Burlington, VT · Member since 2010 · 2k+ posts · 1k+ votes
    15y

    Hi Danny,

    Thanks for posting all these details - it's a great read! Just curious, on 5/7 you said someone was writing an offer - did that not come through? Or are you doing the open house this Sunday for backup offers?

    Thanks,

    Tom

  • Developer · Houston, TX · Member since 2008 · 488 posts · 121 votes
    15y

    Yes, they made a verbal offer but never came through with a written contract. Unfortunate, but it happens.

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    15y
    Originally posted by Danny Day:
    Yes, they made a verbal offer but never came through with a written contract. Unfortunate, but it happens.

    As an agent, I'm sure you already know this, Danny, but for the rest of the newer investors out there that don't have experience in this business, it's worth mentioning that -- more times than not -- when someone says, "We'll be making an offer," or "I love this house, I'll be calling my agent today to write up an offer," you won't be getting an offer.

    It's not that they're lying to you or trying to deceive you...it's just that once they walk away and actually have time to think about the MAJOR step of putting in an offer, there's a lot that can get in the way. They may get cold feet, they may have just been saying that to let you down easy, they may want to look at more properties "just in case," etc...

    So, after a short time in this business, you learn to have ZERO expectations about anyone telling you that they plan to submit an offer.

    In fact, I've had AGENTS call me, ask for my fax number, and tell me that they're sending an offer over "right now." And I never get one... :roll:

    Just part of the business...

  • Real Estate Investor · Houston, TX · Member since 2011 · 33 posts · 3 votes
    15y

    Any updates? I see the list dropped.
    -XY

  • Developer · Houston, TX · Member since 2008 · 488 posts · 121 votes
    15y

    Came down on my price twice now. My neighborhood has over 13 months of inventory (ouch!). Wish I had MLS access before I purchased the property. That is something I would highly recommend any new investor do before buying a house to rehab and sell.

    With that being said, my house is listed at $129,900 right now. Priced to sell. Very little room for profit for me. I will still walk away happy at that price.

    My hard money loan is due in August, so I have a few options:

    A) Find a buyer at current list price and close by August
    B) Refinance out of the hard money loan, lease for a year and potentially risk the tenants destroying all my work
    C) Owner finance the deal

    I've posted the property on Craigslist, and have got over 5 calls today asking about owner financing. Something I was not considering, until I got an offer for 30% down, 5 year pay off with an interest rate of 9%. I also mentioned that if I was to owner finance, I would be raising the list price to $137,000.. and they were okay with that.

    I'm showing this weekend to the potential owner finance people. I would rather just do a conventional / FHA sale right now and walk away sold.

    Does anyone have advice with the owner finance situation? I noticed a lot of investors on Craigslist are advertising owner financing available. It seems like a win-win situation if I get 30% up front (pays for out of pocket expenses), and can sell at my original list price.

    Could be a headache if we have to foreclose, but couldn't we just re-sell with another substantial large down payment?

    Thanks,

    Danny

  • Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
    15y

    Some serious flippers would say your only exit strategy is to sell and keep dropping the price until it sells... I see that argument but also know you don't wanna take a loss on this, your first flip... If you owner finance youhave to refi with a bank and then sell on a contract for deed... Would your buyer be ok with that?? Title doesn't go in their name... Find out about their credit issues... If you take the owner finance route you may be able to sell the note after a few months of seasoning... All that being said I'd just drop the price and get out even if at a small loss or break even.., I've gone the owner financed route ad regretted it every time... Can you extend the hard money loan for a few points?? What's the average Dom and where are you in relation to it?? Sometimes I get anxious too soon... Your buyer could be right around the corner if you price it better...

  • Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
    15y

    Also when exactly is your loan due in august... The first??? If so you need to have it under contract a month before that at least so at the latest July 1...I'd really look into a loan extension before a refi... And I'd sort it out asap... Good luck danny

  • Real Estate Investor · Houston, TX · Member since 2011 · 33 posts · 3 votes
    15y
    Originally posted by BryanA:
    If you take the owner finance route you may be able to sell the note after a few months of seasoning... I've gone the owner financed route ad regretted it every time...

    OF is one option, I like the sell for a loss and you make a gain on your education.

    Danny,
    I would highly recommend joining one of the any real estate groups in Houston.

    -XY

  • Investor · Little Rock, AR · Member since 2008 · 42 posts · 2 votes
    15y

    Such a good thread. Thanks, Danny. Any updates over the past week?

  • Contractor · Seymour, CT · Member since 2011 · 58 posts · 1 vote
    15y


    Hello Danny,

    Congrets on moving twords your first flip, getting your ducks in a row is very important.

    Do you have contractors lined up too? that is a daunting process for the first one. I have my first property under contract have financing in place and at the last minute need to locate a cash partner to help fund the rehab portion of my flip.

    Can I ask who your using for your financing?

    Lots of luck

    Kevin Rizzo

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