Rehabbing first house in an expensive area?

Question

I am looking for general advice on how to handle a first flip. I have a very interesting off-market opportunity in an "A+" neighborhood. It would be a fairly expensive flip, but the upside is also pretty amazing. Is it better to start with a "safe" flip, or just go big if the opportunity is there?

John Warren · Answer

Thanks for the feedback everyone! @j scott there is definitely a nice margin on this deal. The seller threw out 350k during the first conversation and the comps I pulled are all over 700k in this neighborhood.

I appreciate the good tip about days on be market as well @Russell Brazil! I will be looking into that.

Thanks as well @Julia Blythe for showing some numbers from a similar flip. I was thinking it would cost quite a bit to do this right and it looks like you have had a similar experience.

I am currently speaking with an experienced flipper. We may partner to do this deal which would be my ideal situation since she and her husband have done many flips successfully.

Julia Blythe · Answer

I have to agree with @J  Scott.  Our first flip was in an A+ neighborhood. It was a 2,000 SF house built in 1922. We added 800 SF and updated all electrical and plumbing and completely renovated with contemporary elements typically not found in historic neighborhoods, such as open floor plan, large closets and master suites (both up and down) and gave the house a modern aesthetic.

Here were our numbers:

Purchase Price:  $165,000 (cash)

Renovation Costs:  $220,000

Selling Price:  $598,000 (paid 3% to buyer's agent). We never went to market with the house as it sold before we were finished.

Of course, we had holding cost, as it took us 8 months to finish.  We took our time to learn how to do it right and were careful to setup trade accounts so that we could buy high end finish materials as cheaply as possible.

As long as the numbers work, you are confident in your design aesthetic and give the people quality work and what they want, I would say, go for it!!!

I think the tendency for most people on flips is to spend too much money on renos and if you are in an A+ neighborhood, there is much more upswing available to handle the extra costs.  Spend too much in lesser neighborhoods and you may lose your shirt.

Good luck!

Russell Brazil · Answer

@John Warren One thing to consider too is sometimes your holding costs can be pretty high if the neighborhood is too nice.  You go into a million dollar neighborhood and homes just take longer to sell than in a $200k neighborhood.  So when you are looking at the comps, look at how long the days on market are and make sure to factor in the additional holding costs if applicable.

J Scott · Answer

Are the numbers solid?  Does the ROI scale with the price?

Personally, I'd rather flip in a nice area than a not-so-nice area, so that shouldn't stop you, as long as the numbers are good.