I have come across many deals here in Houston the past few weeks. Mostly flooded properties (only flooded once due to Harvey). These homes are ranging from the 1960s-1990s. Most of the homes have their entire first floor sheetrock and floor torn out. ARV and rehab estimates are provided by the wholesalers, but are not guaranteed. Rehab is possible, but I find it difficult to pull the trigger on a property because of various reasons...
1. After the flood, I would expect market value of homes to decrease by 10-15%. So if the house was worth 220k before the flood in marketable condition, it would be worth at most 198k after the flood and after rehab. Of course, location plays a factor in this but am I generally correct? The ARV provided by the wholesalers doesn't take that drop into account and there aren't many, if any POST FLOOD comps to confirm this.
2. Am I going to be paying premiums for material, labor, etc. I would expect repair costs to increase since demand is increasing in the area.
3. Is there a minimum built year that I should set my target as? Should I stay away from homes built in the 1960-70s?
4. In terms of numbers, most of these deals seem to be 80% flips. I know the general formula for rehabs is 70% but is that still the case? As far as I know, the formula shouldn't be used solely to make a decision but it is a good guideline to follow.
I almost feel like I find myself over-analyzing, which can be a good thing but at the same time, I feel like I am never going to find the best deal out there. At this point, I don't know enough to be able to determine if I should jump onto a deal. I won't learn unless I try so I may just take the leap even though its not perfect. That way, if I succeed or fail I'll correct it the next time around.
@Khizar Hanif This really sounds like a great question for fellow flippers at a local REIA meeting. Find others that are flipping to get an idea of the questions you have above. I know that here in NE Florida, we are going to see a lot of homes hit the market next year once fixed from Irma flooding. I don't have data for you yet as many people are still working on homes to repair them.
@Khizar Hanif I suggest you make some time on Monday and go out to the Houston Real Deal meetup headed up by some of my friends. Their topic will be exactly what you're asking about.
I don't have the link right now but you can just Google 'Houston Real Deal Meetup'.
Thanks for your response guys. As of last Thursday I have a property under contract. More details to come.
I will be going out to the event tomorrow (Monday) "how to buy flooded homes" at the Black Lab. I have been to one of this groups events before. Thanks for the heads up!
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing