Fix and flip project criteria

9 Replies

Hey BP community! Experienced rehabbers, I am curious:

1) What is your criteria for a fix and flip project (such as age of the property, location, size/cost of the project, etc.)?

2) Why is this your criteria? Does this make it easier to identify and make offers on potential deals? 

3) How can I develop my own fix and flip criteria catered to my market (specifically Baltimore, MD)?

Thanks! Brendan. 

@Brendan Henry-Lambert

If you are new to fix and flips, I would recommend going for the easier projects: single family homes, in good stable areas in a medium income neighborhood. I call these the "bread and butter homes," where most buyers will probably use an FHA loan or conventional.
These areas will attract the larger buyers' base (owner occupants and also landlords.)

As far as criteria, I personally want to make at least 10% of the final resale price. So if the property will sell after fix up for $300,000, I want to make $25k to $30k, otherwise I will probably just wholesale it and let someone else take up the project (wholesale for about $10k profit.) When you fix and flip, you have to take in consideration changing times and fluctuations in the market, therefore in order to take up the project I need to have a cushion of at least 10%.

It all comes down to what is your comfort zone. Do you have contractors and financing in place? Do you think you can turn around properties pretty quickly? 10% profit based on resale value is pretty standard average across the country, but I have seen higher or lower, depending on personal criteria.

@Laura Alamery Thanks Laura, my partner and I are currently in the process of interviewing and searching for the right contractor now, we have several private and hard money lenders we've been in contact with but are yet to have any loan commitments (however they are very keen on working with us and have flexible terms that will work well for us). Luckily my partner has a strong relationship with several of the best realtors in Maryland that specialize in selling investment properties and i'm very confident we'll be able to sell quickly. But at this point i'm focusing my energy on choosing the best possible contractor (and it has not been easy!). 

Originally posted by @Brendan Henry-Lambert :

Hey BP community! Experienced rehabbers, I am curious:

1) What is your criteria for a fix and flip project (such as age of the property, location, size/cost of the project, etc.)?

2) Why is this your criteria? Does this make it easier to identify and make offers on potential deals? 

3) How can I develop my own fix and flip criteria catered to my market (specifically Baltimore, MD)?

Thanks! Brendan. 

My criteria is that I have to be comfortable with the type of work needed and that I can get the ARV I need. I also prefer SFH in the County where I have room to stage materials in a driveway. I hate lack of space.

Just make sure you can SEE what you are doing. Can you accomplish the work for the right $$$. Can you get the ARV. Is there a margin for error? I usually plan on selling slightly below market so it will move fast, and I have about $5,000 fudge factor on the work cost.

@Shawn Clark Awesome, thanks Shawn. I figured that as long as the numbers make sense and homes are selling quickly, that having a strict "criteria" wouldn't be necessary (aside from at least a good understanding of where I DON'T want to buy and the cost of the project). I plan on incorporating a large fudge factor on my first project so I won't be putting myself (and more importantly my lender and contractor) at risk, even if it means a smaller profit i'd rather be safe than sorry! Thanks.

1. Simple as this equation: acquisition+rehab+holding cost is less than net sale amount= deal. The closer the first side is to the second side, the more risk involved because the numbers are always subject to fluctuation.

2. Getting the experience and knowledge about all of the components of that equation= being competent.

@Brendan Henry-Lambert I am not a rehabber so I can only give you limited feedback. I can tell you that having criteria is definitely a good idea.  It will absolutely make it easier to locate and negotiate deals. 

Some use style of property say row houses, some use price range and some use a geographical area. I know a rehabber who used to limit what he did to rowhouses in a small part of zip 21229.  He knew his market and costs hands down. Because he was regularly in that area he found deals before others knew they were available. 

By holding yourself to a specific criteria, it enables you to be the expert in that area. It is my belief that the people who know their market best get the best deals. Rather than limit you, it allows you to become more efficient.

Hi Brendan, we look for acquisition and renovation to equal not more then 75% of the ARV. This leaves 25% for closing costs coming and going, finance costs, and profits.

Look for areas with low "average days on the market"(30 or less). Look for areas with a lot of activity(you will see other rehabs in the area). Ask your realtor to find out where they have been a lot of cash sales in the last 90days to six months and that will indicate where investors are buying. Take on a smaller project for your first one. I had to learn the hard way taking on a big project my first one. But most importantly you can't flip a house without good contractors!! and there aren't a lot of good contractors! They will all say they have 25 years and can get the job done and still screw up. Screen very heavy!! You can buy right and the contractor messes up the deal because he under bid on the renovation cost and or he doesn't know what he's doing and screws up. 

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