New to Real Estate. I'm interested in rehab and flipping houses, I've found a few potential properties but just don't have the money. Where do I start?
Hi Ryan, let me first say congratulations on taking the leap to real estate. If its a real deal money won't be an issue. When I flip a house I always do it backwards. Let me explain. (disclaimer... this may or may not work for you, I have never ever had a flip that was just paint and carpet, I always had a major remodel)
First I find the ARV (after repair value), what have similar houses in the direct vicinity sold for. I never went more than a half mile radius. And alway compare apples to apples, a 3 bed 2 bath compared to similar.
Second is the cost of the repairs. On a 3b/2b I know that its going to cost me in the neighborhood of $30k-$35k based on redoing both bathrooms and the kitchen as well as touching everything in the house. (It could cost more if you do not know where to shop for your finishes). Electrical upgrades and fixing various plumbing issues, and making sure that the HVAC system is not only working but working well. And don't forget about landscaping and curb appeal. Did I mention garbage ?? Well you are probably gonna need a dumpster, at least in the beginning. Don't worry the neighbors will help you fill it.
Third, do not forget your carrying costs. Insurance, make sure you have the right insurance. Tell the agent you are doing a flip, you'll be surprised how many insurance companies will not cover you. They will insure you, but will not cover the claim. Utilities. electric and water and gas. Those costs add up quick if you leave a toilet running, or if the hose is left on, or if your contractors feels like setting the thermostat to 70 when its a 110 in the summer for the whole week while you are not there.
Fourth, after all that work you are gonna want to sell that house. This is where your best friend comes in. All joking aside, a good realtor will not only help you sell your house fast, but they will help you find your next gem. So there goes another 5% .
Lets look at the numbers.
$185,000 the ARV
$3000 the carry cost
$35,000 Repair Costs
$9250 5% realtor commissions
that leaves a grand total of $137,250. How much did you find the house for ?? What is left over ?? How much of the work did you do ?? In the scenario above I was on the job site daily, did a lot of the work. Not sure you could do the repairs that cheap if you are not there. How much is your contractor going to charge you ??
Variables change the numbers, YOUR numbers. Remember the last person to get paid is YOU.
Oh my, I almost forgot to answer your question. If you find the deal, do your homework, have a real cost breakdown, really know your numbers. Money will not be a problem.
Connect with me and we can go over this scenario and some others. Hope this helped