Doing a Live and Flip in Indianapolis -- Any Advice?

Question

I'm about to purchase a property in Indianapolis, IN and want to try out the live and flip strategy. Below is my ideal outcome.. Please chime in with any advice you have that might help me save (or make) and extra few bucks along the way.

• Will most likely use an FHA 203(k) Loan
• Will target a home that's in need of repair in an ideal neighborhood -- between $80-110K purchase price with an estimated $20-50K in rehab
• I'd like it to be a 3 bed 2 bath or a 4 bed 2 bath
• I'll rent to friends during the process to at least break even on mortgage plus expenses (and live free)
• I'll sell with some forced appreciation after 12-18 months -- ideally at least $20K in profit

Matt Speer · Answer

It’s always fun looking back at old posts. @Mindy Jensen I wish I would have listened to your advice about doing the rehab with roommates, especially with setting proper expectations. My contractor ended up turning a 3 month project into over 7 months and it caused serious conflict with my roommates. However, the numbers shook out very well and the knowledge helped lay the foundation for quitting my job and starting up my own brokerage.

Here’s how the numbers shook out:

$162k purchase with 203k loan

$70k in rehab costs

Sale price: $280k

Tax free profit of roughly $45k

I’m in the middle of rehabbing my next live and flip and plan to move in with another roommate, my wife, in early 2019. I’ve funded it all with private capital and an equity line of credit. It’ll be $135k purchase, $200k rehab, and the ARV is $475k. Definitely more risk, but you can’t make six digits on a flip unless you take the leap.

Anyway, thanks everyone for their advice a few years ago. Gotta love the power of BP!

Matt Speer · Answer

@Mindy Jensen I hear you on the contractors. My brokerage has finally landed a few contractors who do things on time and on budget for our investor clients. They're like unicorns. It helps to have a full time rehab manager on the team too.

Yes, she's on board. Since we both work from home on most days, the key is not talking business after the work day. Sometimes that's hard for me since I'm always thinking through that next deal or business model tweak.

Here are a few pictures of the first and current live and flip project.

Before:

After:

New House Before:

New House After:

Mindy Jensen · Answer

@Matt Speer , to be fair to your contractor, every contractor I've ever worked with turned a 3-month project into a 6+ month project.

Good luck with the next flip. Is your wife on board?

Account Closed · Answer

Any plan is a good one if you make it work.

You might want to think twice about renting to friends. That's a good way to end a friendship.

Matt Speer · Answer

@Clay Manship

I've thought about that route with the multi-family. In terms of finding a good deal, where would you recommend I start? I'm willing to put the work in to find the deal, but just need to know where to use my time first.

Also, would you say the upside on the appreciation is better on a multi-family? I've been told that it's tougher to make a profit on a multi-family when doing a live and flip because the end buyer of the fixed up multi unit will be another investor that's looking for a steal. Thoughts?

And great insight on using private money. For some reason I hadn't thought about that.

Clay Manship · Answer

@Matt Speer

A nice strategy...203ks are powerful if you know how they operate. If I am you, I am acquiring a distressed multi-family property (2-4 units) and doing a 203k on that deal. You can live in a unit, have the other(s) pay your mortgage, and you will live for free as well as be able to exit with forced appreciation.

I would recommend buying in cash if you have an investor who will back you, and then refinancing into a 203k. That will allow you to get the best deal on the front end, as well as the same benefits of the 203k after the refinance. You're well on your way...best of luck.

Wells Lange · Answer

fantastic area. I grew right down the street from broad ripple near 62nd and Keystone. Went to North Central high school

@Matt Speer

Crystal Smith · Answer

Never having done a live & flip;  at least not as a business strategy.  You say your "ideal outcome" is to use "forced appreciation" for your $20K profit margin after 12-18 months.  $20K seems to slim from an equity standpoint, especially if you're betting on appreciation.  My opinion, given the purchase price point & renovation targets you've set, you're ideal property should have an After Repair Value of ~$225K when you complete the renovation.  That way if the market takes a downturn during the 12-18 months you own it, you'll hopefully still have equity to profit when you sell.

Matt Speer · Answer

@Patrick B. Thanks for the insight on the Homestyle Renovation loan, I'll check it out.

@Mindy Jensen I'm planning on living in it during the flip because my thought process is, I have to live somewhere and I might as well try to find a situation where I can live for pretty much rent/mortgage free. Also, in my eyes waiting the full 2 years for the capital gains tax break seems like I might not make as much money, as opposed to trying to do 2 live in flips in that time. What do you think?

@Wells Lange I'm looking in the Broad Ripple or Butler/Tarkington area.

Thanks for all the feedback everyone!