Contemplating Out-of-State for first flip due to expensive local market
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- Poway, CA
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I am often the contrarian and I am the contrarian in this thread.
How many flipping shows do You see in cheap RE markets? There is a reason there are none and it is because, to word it kindly, the added value is not impressive in the cheap markets.
last year I added a half bathroom out of existing space in a unit that had an ARV over $2k PSF. That half bathroom added ~$50k of value per the comps (mission beach, 3 units from the ocean). How much value would be added by adding a half bathroom out of existing space in a cheap RE markets? My total value added was over $100k above my costs. Adding $100k above costs is near impossible in cheap markets.
You want to flip in markets where you can add significant value. If average psf is $200, how much value can you add?
Let's run a scenario that looks like good percentages. Median psf $200, 1000' little 3/2 that you purchase at 70% of median. Purchase $140k. Achieve the common goal of $2 added for every $1 spent on value add. Spend $40k on the rehab to add $80k. In for $180k on ARV of $220k, $40k spread. Then subtract holding costs and selling costs. you are maybe looking at $20k profit (if your lucky) depending on speed of flip and sale. Seems like a lot of work/risk for $20k
I believe everything I wrote but want to add the RE market is perhaps the most challenging ever. It is not trivial to do a successful flip in any market. Clearly the highest reward for effort/risk is not in the cheap RE markets.
Good luck