First time Flipper/investor

19 Replies

Hi All,

I am a Realtor. Been in the business only 6 months but finding success already. I am looking to buy my first condo in November which will also be an investment. I am wanting to live there while I flip it. I can be a minimalist so I have no fear of living through it. I am in Chicago and wanting to start with a condo and focus on cosmetic renovations for my first flip. I have found some properties and ran comps to see what I could resell for. I am new to this but wanted to be in RE investing for years now. Any advice would be much appreciated. 

@Ellyn Cook , sounds like a great plan.  Since you're occupying the property, you can legally obtain conventional financing.  However, know that if you sell the property within 1-year of purchasing it, you'll likely end up on a 'mortgage lending radar' and have some explaining to do on future loan requests.  Lenders watch for this activity to flush out folks who represent a property to be a primary residence rather than the traditional fix/flip investment it really is.  

Keep in mind the fact that you can only sell 1 primary residence every 2 years at reduced or zero tax liability on the gain (under current federal tax laws).  Plan accordingly. 

Last, but not least - be mindful of the HOA rules for renovations. Be sure to coordinate renovations in accordance with the HOA management company. If you have to do any major work that disturbs drywall, be sure to test for asbestos (if applicable). I can share real stories about investors who were hit with $30k+ liens from the HOA for 'environmental cleanup' due to alleged asbestos release. It's not worth the risk - especially since you'll be living there!

@Ellyn Cook - Sounds like you are already on the right path! Search properties, estimate rehab, run ARV, rent/sell......

Is your plan to live there for two years to avoid capital gains?  Or are you looking to hold the property afterward as a rental?

I personally like the idea of rehabbing condos right now because it seems like you can find some properties at discounts with many millennials moving to the suburbs.  What areas are you looking in?

@Jason Richards hit the biggest concern to watch out for I think - HOA restrictions on renovations. Make sure you can do what you want to do to enhance the unit for your own personal use and then for rental or sale after you go. I think condos are a great first investment and recommend them often because they are more protected and you have fewer responsibilities than a single-family home which reduces your liability. But, of course, you pay for that with HOA.

@Jason Richards hi!

Great information! I was thinking about living there for about 16 months, allow time for renovation and sell when the spring market is hot here in Chicago. Do you think there would be many issues with that timeline? I work with a lender often for clients. I will work with them in the next few months once I come up with a solid plan for my own financing/timeline. Down the road I want rental properties but will probably sell the first round to get more money to invest. Long term goal is to get a 3flat, renovate, rent out 3 units and live in one.

Great call on the HOA, I will read minutes and special projects and also talk through reno plans out the gate.

@Jonathan Klemm

Hi!

Long term goal is to have rentals but I will probably sell the first round. Was thinking 16 months. Put me in the hot spring market to sell. I will have to talk to my lender about this timeline! Do you know if I would have to pay on Capital gains at that time? Work it to wait another year?

Absolutely! Looking at the Near North side - River North, Lakeview, etc. Tons of inventory in River North but higher HOAs so needing to find a balance to make a smart investment. Really will just have to be case by case but that’s the market I work in. Also we are already seeing a upswing in people returning to the city so I think when it comes time for resell it will put me in a better position.

I see you are in Chicago! Any insight you’ve seen?

@Jonathan Greene

Hi! Absolutely agree! I don't want to deal with any huge renovation projects on my first go around. Will go for a timeless clean look for easy resell. Most likely will sell the first time around (16 month goal) but it will depend on my position/market. Would love to keep rental properties. It will come down to financing too. I will need to work with my lender (and I possibly have an investor) to see if I can scale it quicker. I will check with each HOA, minutes, specials, etc. I wouldn't want to deal with that! Any more insight into timelines? Or how I could go about selling and avoid capital gain issues?

This is a great goal. I'm looking to do the same thing because I think people are gonna start moving back to the city now that COVID restrictions are lifting.

John Klemm hit the nail on the head, 2 years and one day to avoid those Capital Gaines Taxes. But you could also look into 1031 exchange, maybe. I'm not entirely sure if condo to condo is allowed. If my phone would allow me to tag people on here that would help immensely, but I think John Warren would be a really solid resource for you to check out here in the Chicago land area for all things financial.

@Ellyn Cook - If you were there for under a year you'd have to be short term capital gains tax, if you were there for over a year but under two then your capital gains would be taxed as ordinary income, and if you were there for over two years then you would be eligible to pay no capital gains.

Love those areas and they'll never really lose value.  In my opinion, definitely find something that needs a little work, the long-term benefit of value add properties is priceless.

Seems like you are on the right path, I'd just say don't wait for the perfect deal.  

"The fastest way to get ahead is to get started"

Originally posted by @Ellyn Cook :

Hi All,

I am a Realtor. Been in the business only 6 months but finding success already. I am looking to buy my first condo in November which will also be an investment. I am wanting to live there while I flip it. I can be a minimalist so I have no fear of living through it. I am in Chicago and wanting to start with a condo and focus on cosmetic renovations for my first flip. I have found some properties and ran comps to see what I could resell for. I am new to this but wanted to be in RE investing for years now. Any advice would be much appreciated. 

 

I'd focus on buildings that also allow Rentals. This way you'll have an option of flipping the condo once the renovation is complete or refinancing and renting it out.

Buy low and make sure your construction numbers are accurate.  Keep your comps very tight and make sure you are comparing apples to apples.  Most deals I see are purchased too high and are too low on construction.  That is a recipe for losing money.

Selling my 3 rentals, no real income after taxes, insurance and prop mgt fees.  Looking to flip in Houston.  After reading some of the comments, should I buy with cash which I can do with rental sales proceeds?

@Jonathan Klemm - Great insight! I might go two years on the first and hope to partner with an investor to possibly get another property at the same time. Do you know about investment type loans? Or do people tend to find investors that can provide a cash offer?

Agreed! I am ready to make moves! I am looking at properties that need a full cosmetic facelift. Great having the insight of comps and market trends to go off but need to drive deep into crunching the numbers to be profitable. 

@Ian Walsh Good point! Every unit I've looked at I have run comps, market time, etc on other units in the building. I am slowly starting to look at cost of each renovation project. Any websites or programs that could help to track or get quotes easily? 

Originally posted by @Ellyn Cook :

@Crystal Smith Absolutely! It's always great to look at rental caps and what other units rent for too. I see you are in Chicago too. Any thoughts on our market?


Ellyn:  I find the question "Any thoughts on our market" too broad. I think of Chicago as 77 submarkets. And there are markets inside of there are different markets inside of those markets. 


Since the original topic of this post is flipping condo's I'm going to assume that's what you're referring to. These aren't my thoughts, just the data as of the time I"m posting this and it's general for Chicago (not neighborhood specific)

  • Median Price- $339K; 
  • Market Time 79 days; (this is a long time considering what's going on w/ Single Family Market Times)
  • Selling on average at 98% of List Price (No bidding wars in the condo market); 
  • Contract to Close 44 days; 
  • 5.1 Months of supply

Every submarket is different so you can't use these numbers for planning purposes.

@Ellyn Cook - There are plenty of different types of renovation loans.....it really depends on what your strategy and overall end goal is.

When we are flipping properties we are typically using hard money/private money so we can leverage the remaining cash in other deals and/or just to have it ready to deploy if the right deal comes around.  You can also you bank financing but you'll likely be putting down anywhere from 20-30% opposed to the 10% we put down with hard money.

@Crystal Smith Yes, I agree completely. Every neighborhood is incredibly different, I should have worded my question better since this post is regarding flipping - any thoughts on our market as far as investment areas or up and coming areas that would be good areas to invest? I am leaning towards condos because there is a bigger supply and now with the City opening people will be moving back. Since River North has almost a 12 month supply it would give me room to come in with a better position to negotiate in this market. (Even though I've been in a bidding war for a condo!) But the down side is high HOA and more restrictions. So wanting to keep an open mind to other areas but I tend to work on the North Side so living in the unit while I flip it with an easy commute is ideal!

Originally posted by @Ellyn Cook :

@Crystal Smith Yes, I agree completely. Every neighborhood is incredibly different, I should have worded my question better since this post is regarding flipping - any thoughts on our market as far as investment areas or up and coming areas that would be good areas to invest? I am leaning towards condos because there is a bigger supply and now with the City opening people will be moving back. Since River North has almost a 12 month supply it would give me room to come in with a better position to negotiate in this market. (Even though I've been in a bidding war for a condo!) But the down side is high HOA and more restrictions. So wanting to keep an open mind to other areas but I tend to work on the North Side so living in the unit while I flip it with an easy commute is ideal!

When it comes to the North Side I don't think of any of the areas as "up and coming". Same with the Near North Side. You may want to explore opportunities River West if the commute is not too bad for you.

@Crystal Smith agreed. The North Side is established so was hoping to jump in on the high amount of inventory.

West side isn’t bad commute at all and will definitely consider. Thank you! Was also considering Logan Square, Bucktown, Old Irving, Andersonville, etc if I can handle the commute or shift my focus to those areas too. Lots to process and consider :)