My wife and I are working on finding the right fix and flip project in the Inland Empire in California. We got into flipping last year when we renovated and sold a family home and realized a decent profit. Our goal is to flip a few homes and then reinvest all the profit into building a rental portfolio over the next few years.
We have visited a few dozen homes and seriously analyzed 3 or 4 potential flip candidates. We have also visited numerous properties currently for sale that have been flipped to see the material and labor quality standards for the area. The material quality and crafstmanship are both mid to low grade. We do not want to get into a business of cheaply flipping homes and providing low-quality housing to buyers... but we also want to realize a profit. So, this brings me to my question... I have run a few potential flip projects by my GC to get an estimate on the scope of work. We use that estimate and the BP Fix and Flip calculator to find our max offer but it always comes in much lower than what other investors offer. For instance, the last calculation I ran was for a 3 bed 2 bath home with an ARV of $360k, repair estimate $40k, profit requirement $20k, for a max offer of $258k. We made the offer and found out that another investor had an offer in for $280k.
I am worried that we are simply way over-estimating our rehab cost by running through a GC. Or, we are rehabbing items that are not necessary. I have listed below the basics of our rehab and am hoping you all can let me know if this is competitive and fair. Meanwhile, I am going to send the same scope of work to other local contractors to get an estimate. I really appreciate your help. BP Rocks!
Single Story 3 bed 2 bath 1585 sqft
Paint Interior - 1585 sq ft - $1.9/sq ft = $3,000
Scrape popcorn ceiling, texture, and paint - 1350 sq ft - $3.1/sq ft = $4,185
Remove old carpet and install vinyl plank flooring - 1175 sqft - $5/sqft = $5,875
Replace carpet with new carpet - 410 sq ft - $2.2/sqft = $910
Remove dead grass and install sod - 1850 sqft - $2.1/sq ft = $3,850
New two car garage door/opener/track and installation = $1,500
New window and installation = $250 each
Bathroom remodel - vanity, mirror, light, toilet, demo and build back new tub or shower with ceramic tile - $4,500
Kitchen remodel - 30sqft quartz, 12ft upper cabinets, 12ft lower, backsplash, sink/garbage disposal, $9k
There are many more items to be repaired/replaced but I realize this is turning into a long post so I will stop there. Please let me know what you think or if you have any advice.
@Dave Zarcone - as I am not familiar with your area, I won't comment on specific pricing. But here are some thoughts
-The market is a lot tougher nowadays, and people are making less on deal.
-You don't know who the other investor is, and what advantage he might have. I lost a deal last year to a GC. He can do the reno cheaper than I could simply because he is a contractor. I have seen flippers that have all their own cash, no hard money financing, be more competitive because they don't have the higher carry costs as others.
-A more experienced investor might have better pricing on labor and materials because of the volume they do.
-The other investor could have overpaid. Or overestimated the ARV.
-You could also be too conservative on your ARV.
@Dave Zarcone Hey Dave, pleasure to see a post from a local 909-er ;) I grew up in Rancho Cucamonga and started investing in San Bernardino.
I agree with Andrew on this.
The market has gotten very tight over the years as most investors are seeing 6-10% cash on cash returns per project in our area - sometimes even lower.
In regards to construction costs in the area, my partner and I take on deals expecting around $30/sf for simple cosmetic rehab on middle tier homes (does not include ac,roof work, electrical, plumbing, or foundation work).
If it's a simple rehab, start forming relationships with sub contractors (paint, flooring, kitchen/bath, etc). You could easily cut down the costs by managing these guys yourself rather than pay more for a GC to manage it.
In all, expect to shell out offers like it's nobody's business, especially in a market like ours. As the saying goes, it's all a numbers game.
I flip in the Inland Empire. Those prices are decent for the area. It won't get much better than what you have. You could reduce your cost by seeding grass instead of using sod. So you might want to take a look at your methods of rehabbing and not necessarily the pricing. Also, making offers on MLS properties is going to be highly competitive, so you better have an edge.
There is a lot of competition out here all over the country. I see houses that I bid on and it is similar, someone is paying more, sometimes a lot more. I actually was blown away by one that just sold for less than I would have offered... I held back on making an offer (glad I did) but it went for about $5k less than I would have gone in at. The majority of the houses sell for $10-30k more than my offers...
Thank you all for your input. It definitely is a tough market in LA, and even the IE. A quick search on the MLS shows a high number of quick flip properties for sale. However, we are determined to find a deal. We already have funding lined up, pre-approval letters ready to go, just waiting for the right property and scenario.
I think I need to adjust a few things when analyzing the numbers based off all your input.
1. Lower our expected profit for the first few deals, at least until we get to a point where we have the 'edge'... cash offer, good sub relationships...
2. Adjust some of our proposed rehab methods and potentially eliminate unnecessary repairs
Thank you all for your help. Any other advice would be welcome!
I would go over that bid with a fine toothed comb. I say this because I noticed you have a 1500 sq ft house with 1500 sq ft of paint. that seems like it would just cover the ceiling and not the walls. On top of that you have a popcorn corn ceiling which is being painted. It seems like a redundant quote. I would make sure there aren't more things that are being double quoted. If I had a quote like that I would verify the measurements and pricing. Also if you are redoing a kitchen and bathroom there should be a contingency for plumbing repairs and electrical upgrades which can quickly add costs
@Dave Zarcone the 40k other expenses us your problem as well as the rehab cost. i know you said you want to stand out vs corner cutters but your market doesn’t cater it. the 12% other costs tells me that you’re borrowing money at a high cost when others simply bank roll or cam afford all cash. your 22k diff is simple to solve, take out your financing cost and take lower quality materials mixed with unlicensed tradespeople to do the rehab and there will be your 22k. also check bp calc and adjust the fees to reality ie if they set 6% agent commissions, set it to flat fee listing and what not.