Pros & Cons of Fixing and Flipping Different Property Types
Edmonton, Alberta · Member since 2013 · 16 posts · 0 votes
Hey everyone,
New here to bigger pockets, tons of knowledge here. I have been searching for a while now, but still always on the search for more info/or anyones personal experiences. If this has been done before, my apologies; but if not, I hope this can benefit more people than just me:
I'm looking for the pros and cons (in your opinion or from your personal experience) of fix & flipping each property style, such as condos, townhomes, SFH, MFH, etc.
Thanks all
Brandon,
I've flipped each of the property types that you mentioned. My favorites are the ones that have the largest spread between the after repaired value and the all-in basis. That may sound like a non-answer to your question, but it's not intended that way. My point is that on a flip, all I care about is making money. It's so much more about the deal than the property.
I'm much more concerned about the advantages / disadvantages of various property types when I'm buying to hold. In that case, I have to live with it for the long haul. On a flip, the disadvantages and advantages are long forgotten after the profit check is deposited.
I'm a big fan of flipping multifamily properties, because although the holding time can be longer, the holding costs are cheap (or non existent) and that means a lot to me. Plus, a multifamily is easier, in my mind, to know value - both before and after. You aren't going to sell this thing to a emotional homebuyer, but you aren't buying from one either.
Any other thoughts?
(And Brandon Wu be sure to introduce yourself in the New Member Introduction Forum- and add a photo!)
Thats a very good point, thanks for your insight Brandon. Hopefully this thread can get going. To start, this is a brief overview of what I have gathered thus far:
Condos:
Pros
-Low Risk (big expenses are covered by reserve fund)
-Low cost
-Easy to rent (multiple exit strategies)
Cons
-Low Reward
-Hard to find deal that are worth it
-HOA or Condo boards can be a pain (regarding all aspects)
-Directly affected by any/all units in property
-Susceptible to changes regarding condo fees, bylaws, and management.
SFH:
Pros
-Autonomy
-Easier to find deal/larger spreads
-Can be unique, fate does not rely as heavily on nearby units
Cons
-Much higher risk of large issues (plumbing/mould/structural)
-More square footage (on average) = Higher cost for both property and renovation
...Now this may be all wrong, but if any of you have any insights to add, remove, or add for townhomes or MFH please join in.
Till then,
Brandon
Some more about condos:
Pros:
- May be easier to sell to investors who want a lower cost rental
- Typically lower rehab cost, and quicker rehab time
- Don't have to worry about lawn or pool maintenance
- If the complex is nice, you get the benefits of that
Cons:
- Dependent on HOA to fix exterior issues, like a leaking roof
- May have difficulty selling to financed buyers. There are FHA limits on condo complexes; lenders don't want to lend when one entity owns a certain percentage of the units in a complex; lenders don't want to lend when there is a high default rate in the complex
- Potential for damage to other units, such as a leak affecting downstairs neighbor (luckily there is never any damage during a rehab). :)
- The water shutoff may be connected to many units, so you may not be able to easily turn off the water for plumbing repairs
- Special Assessments! A high special assessment could really ruin your day.
Also, I don't necessarily agree with your "Low reward" as a con. You can get decent returns on condo flips.
Brandon,
I've flipped each of the property types that you mentioned. My favorites are the ones that have the largest spread between the after repaired value and the all-in basis. That may sound like a non-answer to your question, but it's not intended that way. My point is that on a flip, all I care about is making money. It's so much more about the deal than the property.
I'm much more concerned about the advantages / disadvantages of various property types when I'm buying to hold. In that case, I have to live with it for the long haul. On a flip, the disadvantages and advantages are long forgotten after the profit check is deposited.
Thank you Mike & Brian for the replies. The reason I ask is that my team is looking to do our first rehab and flip deal and we are looking into specific property types to target (as beginners).
We would like to do a small single family home, however are worried about the major "unseen" problems that may arise such as plumbing, electrical systems, HVAC, etc. Can all these major issues be mitigated by using professional inspectors? Or are there usually issues that you still cannot detect until you rip down a wall?
We like the condo fix & flip being limited to basic renovations such as hardwood, countertops, paint schemes. However, from the resources I have read across the internet and here at biggerpockets, it seems that the politics (w/ condo boards, bank financing, reliance on other units) make it more of an undesirable property type for the rehabee.
I can't expect anyone to answer the general question if homes are better than condos or townhouses, because like you said Brian, it all comes down to the specific deal. However, what I can hope to get answered is the normal pros and cons of each property type (for rehabbing) so I can get started in the right direction and be an educated investor.
Thanks for all your patience and involvement, hopefully this can provide more insight to my methodologies.
...And if you're reading this and haven't joined in yet, please share your insight!
Cheers,
Brandon
For your first rehab, try to find a cosmetic fixer where you don't have to "rip down a wall". And yes, definitely use a home inspector until you are comfortable with everything. I'd suggest talking with a number of real estate agents and asking them to recommend a thorough inspector. Then, speak to the inspectors and ask them about their process, what things they analyze or do not look at, and how they create a report. Then pick one you're comfortable with.
Our first flips were condos, because we wanted to start small and take on projects that weren't too much work. We made money on them, but we did have some issues. Now, we don't work on condos because of the things we don't have control over.
Brandon, you wisely answered your own question. I think the observations you've gathered in your research are valid. Maybe I'm off-base, but if I read between the lines I think your real question is how do you mitigate your risk? You want to do a house but the condo seems less risky from a construction standpoint.
While that is partially true, there is another way to go for the house with less risk. You should absolutely get a home inspection, and a pest inspection. Then go one step further, and get a contractor to look at the property as well. The contractor can help you sort through what's real and what's BS in the inspection reports. They can also quantify the costs to correct the defects, and they might even find stuff that the inspectors didn't find.
If you have your purchase contract written with an inspection contingency clause, you can back out of the deal if the problems cost more than you budgeted for rehab.
Finally, no matter what type of property, hidden stuff can surface when you rip open walls. If this is your first flip, look for one where the walls can stay as they are.
I hope I didn't go too far off topic!
Brandon Wu,
Most of the rehab/flippers in this area, go after a Home that they can sell to the First time home buyer.
Minimum 3 bedroom, 1 1/2 Bath.
Raymond
Mike G. Very interesting insight, I thought inspectors would be a cookie-cutter profession where each have the exact same process/checklist. Now I'll make sure to screen them first, Thank you. May I ask what "issues" you encountered with your first condo flips?
Brian Burke Seems like you've read between the lines and hit the jackpot; I didn't realize that was my true intention until you pointed it out. Your post is extremely helpful in helping mitigate the risk of a house flip, which is what I am looking for in the end. You didn't go too off topic at all, in fact I believe you did the exact opposite. Thank you.
Raymond B. Thanks for sharing! I will mark it down on my personal list of tips. It's always great to hear new things like that which are not the re-occuring tips in all the guides/blogs,
Levi M. No problem, its all thanks to the people that posted above you like Brandon, Mike, Brian, and Raymond! That is one of the main reasons why I wanted to start this thread. I have seen many resources referring to the definition and tips of fixing & flipping, however I have not found any yet that outlines the realistic pros & cons of each property type (in general). If we can get this thread going and compile a database of each persons real life experience with each property type, I believe it could help all of us learn at least 1 thing more (which could lead to 1 more successful flip)
So far it seems like if I do a basic cosmetic renovation, and have a competent inspection with reinforcement, many of the risks with houses is mitigated. Does anyone have any tips for renovating town homes?
As usual, please join in if you're reading this. Anything added would help us all.
Thanks,
Brandon
My two cents... I think the condo is a little easier as a newbie ( i am still some what a newbie) Most of what others have stated is what i would make note of.
that being the case I will give you an example of the cons... I purchased a condo in 2005 at what was a fair price at the time as it was move in ready and after years of searching it was my best shot. Now the issue is fast forward years later my taxes have gone up 50% and my maintenance has gone up 50%. Now i am living in at as i would probably just break even in renting it.
Now maybe its my fault it was my first property in a less than ideal time.
On the other hand I have purchased a couple other properties since then and condos are easier as far as in general there is less risk in my opinion of a major expense (new roof even plumbing or electric a 1000 sq ft property is not as bad as a multi or sfh)
I think for me the major pro for me was doing research it was easy to get accurate comps on the exact same properties and so i knew where i stood on how good of a deal it was.
Thanks for sharing your experience Gil, I specifically liked the last point where you said: "the major pro for me was...it was easy to get accurate comps on the exact same properties and so i knew where i stood on how good of a deal it was."
Searching around the market, I see this right now, and IMO its a double-edged sword. It does help estimate ARV/real value and provide for peace of mind however on the other hand it does 2 things:
1. Others can just easily judge the ARV/real value as well causing less bargains to be available, and if bargains are to be had, they are picked up very quickly.
2. Your resale value is highly dependent on the neighbouring units and pricing, so it may be harder to sell at a higher price than the other units (a price thats high enough to make the fix & flip justifiable)
That being said, I agree with you Gil. For a newbie investor (such as myself), a condo could provide as a "peace-of-mind" investment where instead of financial gain, you would gain significant hands-on experience that can catapult you onto a successful flip for the future. Better than bargaining on a small house, becoming bankrupt, and quitting!
Looking forward to more insight fellow BiggerPockets members, so far this has been fantastic!
Brandon
Investors probably wont buy a remodeled condo. They want dirt-dirt cheap units with low taxes and low condo fees.
Single Family and Condo make good flips in any market.
Multi-Family make good flip and hold in this market. But in my opinion there is not a big enough investor-buyer pool willing to pay retail value with 25%+ down on a 3+ family.. it's an added re-sale risk.
Thanks for your input Phil Z. Have you dealt with either one of those properties, and if so, which is your preference?
Condos are much easier in my opinion. The repairs are usually less then $20k and the ARV is easy if there are some sales in the complex. You just need to make sure the HOA is stable and well managed and the complex is FHA approved.
Thats what I was thinking as well. Do you have any good techniques for finding out if the HOA is stable and well managed?
P.s: C'mon bigger pockets genuises and gurus, whats your take on the Pros & Cons of Fixing and Flipping different property types?!
Hi, Brandon Wu, in response to your earlier question to me about issues we encountered:
- For one of the condos we bought, the water shutoff was for most of the complex (about 250 units), so we couldn't just turn off water to replace some plumbing. We had to file a request and then wait until there were enough requests for the management to shut the water off to the whole complex for half a day.
- When a sink was removed, the valve to the sink wasn't fully turning off, so there was a slight leak. Despite a bucket catching the water, the water ended up overflowing into the ceiling of a downstairs neighbor, so we had to do some minor repair to their ceiling.
- The wood outside on a porch/balcony area was a bit rotted, but we couldn't replace it because it was the HOA responsibility.
- We had a delayed purchase of a condo, because we were waiting for the HOA to fix the leaking roof in our unit.
- We couldn't find a good place to put a trash bin, so the trash had to be hauled away in trucks.
I'm sure there were a few other things I'm forgetting as well.
Thanks Mike G, that actually helps me alot. I know its not an exhaustive list, however it has given me an idea of the type of things to look out for.
Cheers!
I think Condos/HOA are definitely better for flipping vs buy and hold. Having a much better idea of the ARV makes working the individual numbers easier for me. Also like others have said, they typically don't need as much repairs. The cons of course are if you get stuck with condo commandos who slow down/protest everything you are doing. Time is money both in HOA fees and if you have a hard money loan you could really screw yourself out of all profits by holding costs. As long as the outside doesn't need any work and the inside is basic stuff (no permit needed) you can accomplish a lot when the numbers work out. If you were buying a condo to rent out there's no saying how much HOA and other fees could go up (along with taxes) over 5 to 20 years.
The pros of SFH and SMF (less than 4 units) is that you can drop a dumpster right in the driveway if need be. It's your home, you can do whatever you want with it. There is less headache if you need to use a backup exit strategy and rent. However repairs, especially with REO properties, can be much more costly. In my area (FL) these types of properties tend to be older than condos/townhomes as well.
I don't remember who above said this but ultimately the numbers are what matter the most not the property type
Let me also say that everything I only decided to get into REI less than a month ago and am still educating myself/searching for a good first deal. All of this is from what I've read/heard elsewhere so take it at that.