All Forum Posts by: Andy Sabisch

Depending on how you are structured (personal, LLC, etc.) will dictate tax consequences . . . you want to get that straight BEFORE you buy the property. Most HMLs will only fund to a company not an individual.

In you scenario, if you net $50K from a flip and are not setup as an LLC, it is all taxed as short term capital gains regardless of what you call it. You can talk to a CPA for how you can reinvest and avoid the taxes but find this out first and then buy the property.

Whenever you buy - regardless of the market - you need to have more than one exit strategy.  If flipping does not work due to interest rates or the buyer pool, see what other options there are . . . possibly rent it out, possibly a STR . . . see what is an option.  

With that, as far as a flip today, you need to be a lot more cautious with the buys than 6 months ago.  Without a crystal ball, the market when you are ready to sell the flip may be drastically different . . . or not . .. from what it is today.  

Take a look at the market in the March-April time frame which was the peak.  Then see what has sold since and how much less than the peak for similar properties.  Factor in the interest rate increase and see how they correlate with list price, sales price and DOM.  Then try to extrapolate that drop to where interest rates are heading and see what it looks like in your area.

We just listed a flip that gave us a decent return based on buying right.  We went under contract in 10 days while the average DOM is 45 days with price drops.  We had a buyer concession on closing costs but that was it.  Had we listed it for $25K more, it would be lost in the clutter and still waiting for a buyer.  If you can buy low and give a buyer a good deal it will sell.

Hope this helps . . .

As you have heard, as an agent you can feel the other agent out for details on the property or at least what the agent can share.  It sounds like you know when it was sold for how much so the sellers want to cash in with having done no work and bought the property at the worst time to try and flip (remember, you make money when you buy not when you sell).

They have a number so coming in at half that amount without a detailed basis will likely be rejected off hand . . . as an agent, what would you or your clients do with a 50% offer?  If you provide a solid basis, they are more likely to take it.

But when it comes to investing, you have to take the emotion out of it.  As an agent you see when a buyer falls in love with a property the edge goes to the seller.  Treat it as simply numbers on a paper and come across that way to the other agent.  Show the repairs (inflate them but stay in the ballpark even if you are planning on doing the work) and mention the interest rate hikes further hurting the market . . . do they want to see know or pay carrying costs through the spring only to find the market has not improved.

Good luck

I would look up builder supply houses and see if you can get windows to fit.  We had to replace some and found ones that worked with a little shimming and buildout for very little compared to custom windows and waiting.  

Depending on where you live, try these:

https://www.homeoutlet.com/

https://ilovedirtcheapbuilding...

Both have been helpful for what we have needed in past projects

First there is not a lot pf meat on the bone to cover unexpected costs, holding costs due to the dynamic market and the availability of trades.  If you have a crew of committed resources to complete in essence a new build in a short window that is one thing but of not, where the market is now may not be where it is when you are ready to list it.

The other thing is that when you have someone that thinks they know the market whispering in the sellers ear, you will likely have a challenge on your hands especially when you are offering almost half of what the seller is being told it is worth (even if it is not).  We just went through that where we had a house under contract and then the seller talked to a friend that said the property was worth considerably more and talked the seller into backing out two days before closing.  It cost him $5,000 for us to release him from the contract (could have been worse but we opted to release him) so we found that even with a signed contract nothing is firm until keys change hands. 

It sounds like your seller is getting advice that might not be in his best interest so if you are sold on the property and the work and the price, develop a proposal that shows immediate cash now in a changing market rather than hoping for a sale and having to hold and maintain it.

I would be very conservative with the ARV on the property as with more interest rates looming, you will see values drop to adjust for that . . .we are seeing that in multiple markets we work in which 6 months ago would never have happened.

What is the market you are trying to rent to?  The kitchen photos do not look like a total gut and replacement are needed and the prices for the cabinets you received even with installation are high for the grade you were quoted.  Home Depot or Lowe's have off the shelf units that would do the trick if you feel they are needed.  

The quote of $3,575 without a sink, plumbing or any other items such as hardware, etc. would take a while to recoup in rent alone.  Not sure just that would support increasing the rent unless the rest of the property has been upgraded and this is the only room that wasn't.

Think twice about redoing the kitchen for a rental . . . what you have looks acceptable especially if you are putting in average grade / builders grade replacements.

Quote from @Bruce Woodruff:

Quote from @Andy Sabisch:

Most of the time we find the reports to be a lot of fluff (they can crank the reports out in 30 minutes after leaving the house) and tends to scare new home buyers rather than provide true useful information.  The reason that they always say "recommend getting a professional to assess condition" is because they are not one.  

We tend to skip this step and do a lot of the inspection portion when we do a walk through.  Buy yourself a circuit tester, a quality flashlight, a sonic tape measure, your cell phone camera and a notebook . . . take notes as you go through for flooring, electrical issues, plumbing, roof, etc.   We can look at electrical (with the tester) and plumbing in minutes and tell what it will run us.

Of course there are bad inspectors, I met many during my time in the trades. But you are urging people to be foolish.

So you can open an electrical Main Panel and read it, and judge it's condition with your little tester? You climb on the roof and check the secondary flashing? You go into the attic and assess the condition of the collar ties? I didn't think so.....

Just find a great Home Inspector and pay him $500, best money ever spent. Better if he/she is a General Contractor or PE....

Sorry but I have seen far more bad reports that good ones.  Don't minimize what we check.  If there is knob and tube, I budget for a total rewire, ungrounded 3-prong outlets tell met the work was done improperly and I budget accordingly.  I have a roofer that checks out almost every roof unless I know it is relatively new installation.  I do not waste my time with reports that tell me there are torn screens, bad switches and the like.  If you feel that spending $500+ gives you a report that gives you a clear decision without going to the professionals they always recommend, by all means go for it.

Even in today's market you need to lock down a property on a walk through and if you do not know what to look for, then another flipper that does will get the deal before you do. The last few properties we have looked at there were multiple buyers doing exactly what we were and going in without an inspection contingency was how three were sold (and not to us as we needed to have major issues checked).  

Use whatever tools you feel are in your best interest but for flipping a house, I feel the cost of a Home Inspection is better spent elsewhere. 

Being your first flip, your schedule is ambitious.  Have you validated the time to get carpet ordered and installed . . . since you do not want to buy it until you own the property, I doubt you will get it that fast and installed.  Even Home Depot or Lowe's will not get it installed in 3 weeks from when it is measured.

NOt sure where this property is but $10,000 for closing costs????  Have you talked to the person that the bank / lender uses and ask for their closing sheet?  That number is high.  Then you have the appraisal feel which is part of the closing costs . . . why separate?

The inspection fee of $890 - is that a home inspector?  There is a new thread that was just started that talks about pros and cons for these and you would be better off going straight to the professionals that the inspector will tell you to call anyway.  But again, $890 is high.

As far as the buyers agent commission, if you sell for $310K, that is a 2% commission and very few areas support that rate . . . 3% is the norm unless you have a track record with an agent and being your first flip, does not sound like you do.  3% bumps the commission up to $9,300.

You time frame of sell within two months of buying is overly optimistic based on the market today (and interest rates going up will make it worse).  Even if you get an offer right away, you have at least 30 days to close, 

To cover yourself, you need to hope for the best but plan for the worst.  What if interest rates go up and the buyer pool shrinks more.  Will your cosmetic flip stand out and grab buyers or sit for 6 months which we are seeing in multiple areas.  What if the carpet comes in and is damaged?  We had this happen in a flip earlier this year and it added another month to the project. 

Does you reno budget of $25K include a 10% to 15% contingency amount?  If not better add that as it will be used - always does.

I would run the revised numbers through one of the BP calculators and see what your return is . . . . using your numbers, you have a decent downpayment, will need to cover the reno costs and face an uncertain sales market 3-4 months down the road.

I know this might set off a fire storm with those that do home inspections but what you get varies widely in terms of quality.  Most of the time we find the reports to be a lot of fluff (they can crank the reports out in 30 minutes after leaving the house) and tends to scare new home buyers rather than provide true useful information.  The reason that they always say "recommend getting a professional to assess condition" is because they are not one.  Do a Google search for home inspection training and you will see that many states have little to no regulation on them and once you buy the training and the software, you can start doing them yourself with little more than a flashlight, a ladder and a tablet.

We tend to skip this step and do a lot of the inspection portion when we do a walk through.  Buy yourself a circuit tester, a quality flashlight, a sonic tape measure, your cell phone camera and a notebook . . . take notes as you go through for flooring, electrical issues, plumbing, roof, etc.  Then, the areas we want better intel is where we bring in a professional and skip the $500 to $700 inspector fee.  If the roof is questionable, get a roofer to come over.  HVAC, same thing.  Foundation, Same thing.  Most will give you a free estimate especially if you use them on jobs.  We put the limited scope inspection in the offer and that makes the sellers feel better since we are looking at high dollar items.  We can look at electrical (with the tester) and plumbing in minutes and tell what it will run us.

My opinion is be careful with home inspections . . . you will find they often miss more than they find.  We got burned on one inspection a number of years ago and when I went to the corporate website to file a complaint, they had a button that said "Are you looking for a career change, become a home inspector, no experience necessary" . . . told me all I needed to know.

Quote from @Tarl Yarber:

I focus on cash on cash return based on the project ROI.

Tarl is spot on . . . . every market is different but CoC ROI is the great equalizer.  We have picked up several rentals that have a 20%+ CoC ROI which has been great and we really won't look at a deal unless it is 10%+ without doing anything and 15% with minor upgrades.  The $$ profit on flips may play a factor in going in on one but in the markets we invest in, $25K on a flip is a god day.  In areas where prices are a factor of 10 higher, that would not get most investors to give the property a second glance but if their $100K profit equates to our $25K due to the price of the properties in terms of RoI, then the $$ in profit is not a true comparison.