NEW INVESTOR HOUSE FLIPPING QUESTION

6 Replies

Hello, I am brand new into real estate investing and I want to get into rentals. I good with my hands and so willing to take on something that requires a bit of work to get into shape. I understand the 1% and 2% rules for buying, but how does repairs to get a place livable come into play with renting? 

For example: a 100,000 dollar home that would rent for 2,000 dollars a month when in good shape. How much should I be willing to put into the home? Should I simply just calculate that into my buying price? 

BiggerPockets has a great book on buying rental properties, written by Brandon Turner.  Definitely check it out.

First welcome to this great business. It all depends how how you are going to finance the fix up. Are you going to get a loan for both the purchase and rehab?  If so you can run the numbers comparing income to your note along with all the expenses of rentals. And make sure you aren't putting more into the property than it will comp for. If you are coming out of pocket then theoretically the money is still yours. Instead of in the bank it's on the house. But again, don't be the most expensive house on the street. It can be the nicest, just not the most expensive. And once you are ready to rent be very careful. Make sure you develop a fair criteria you apply across the board. 

There is a webinar in 7 minutes on BPs that you might want to jump on. It's about buying your first property

Good luck

Originally posted by @Michael Dickey :

Hello, I am brand new into real estate investing and I want to get into rentals. I good with my hands and so willing to take on something that requires a bit of work to get into shape. I understand the 1% and 2% rules for buying, but how does repairs to get a place livable come into play with renting? 

For example: a 100,000 dollar home that would rent for 2,000 dollars a month when in good shape. How much should I be willing to put into the home? Should I simply just calculate that into my buying price? 

 For rentals, it would be best if you calculate BOTH the purchase price PLUS any upgrades/renovations and then divide the rental amount to reach your % buying rule. Keep in mind that the 1%/2% rules are NOT rules at all, merely guidelines intended to be quick "back of the napkin" calculations. A full detailed financial analysis is needed to make sound buying decisions and not rely on some % rule.

@Michael Dickey , for back of napkin, short term return calculations, yes include rehab cost into purchase price, which is really your all in price.  

But, as noted, any % rules are "rules of thumb" not actual rules.  And with any property that you own, you can either fix it now or later, but either way you are fixing it.  I.e. you can choose not to spend on a 15 yr old roof today, and probably don't need to, but you will have that roof replacement coming in 5-10 years, assuming you still own the property.

You can't calculate a flip when you don't know really how much everything costs and what to look for and there is no set x if y equation because it's all predicated on what you can buy it for, how much the rehab will cost, and most importantly, what the realistic ARV is when you are done. You also have to take into account that for most first-time flippers the cost is 2x what they thought and so is the time it will take to do it.