Property value lower or rehab cost higher during renovation?

Question

Spoke with many people on here over the last few months. I have yet to hear any input on thoughts for what works out better, what makes more profit, what makes loans easier to obtain when it comes to flipping a house in Philadelphia. If it worth buy a property that is 100K with a rehab value of 85K or a house that is 85K and the rehab is 100K, both have an ARV of 380K in the end. Which do you choose and why?

Anthony Testino · Answer

@Aron Klatt

I have never in 15 years heard of a full rehab costing 20K. The minimum rehab should be 80K. I hear people all the time say they can do rehabs for 60K and I walk in to see their work or what they accomplished and they half way demoed the job and didn't even replace all the plumbing or electrical. I rather pay 65K for a house and put 125K into it and sell it for 385K. Its easier for me to put out 65K to obtain the property and then have investors put up the rehab cost. I know each situation is different for each person. Most investors want to see the house cost more than the rehab, for me its about what I want not what anyone else wants. At the end of the day if I think a project is going to work and make a nice profit im all in. I find too many times investors will complain "this project has no comps" when the block has 3 houses worth 400K but its not enough or "that rehab value is to high there is no profit" when there is a 80K profit margin.

Aaron K. · Answer

It will probably be easier with higher rehab numbers because the lender will see them as more realistic.  There are people out there who will claim a gut job will only cost $20k and HMLs and others can spot them a mile away, don't be one of those people.