All Forum Posts by: Andy Sabisch

The key is PROFIT which needs to be an exact number.  Record keeping is essential since profit is what you paid plus what you put in (every receipt counts) subtracted from the sales price . . . . so the better your records are the more you can offset the sales price and the less you pay in taxes but without records, you have no leg to stand on

Nice property . . . . familiar with the Detroit market having moved from there a few years ago.

So a few questions on your calculation worksheet:

1) The outside looks good but knowing what the interior of homes in say Boston Edison or similar areas look like, there may be a good deal waiting to bite you.  It looks like a large property (3,000ft2+) and what you will find is bigger is way more expensive especially in the expected finishes you will have.

2) The holding costs of $400 / month seems may out of whack.  The taxes and utilities alone will be there let alone any financing costs you will have.  Please check to see what you entered based on how you are purchasing it.

3) The 3 month holding period in this market, at this time of year and with interest rates heading north is a tad ambitious.  Even if you get an offer on Day #1 when you list it, it will be 30+ days to close and you are paying holding costs until the transfer takes place.  Unless there is only cosmetics on the inside or you have a crew that will get in and get out fast, you need to budget 6 months as a minimum.  Finding trades to do the work and get the finishes you need can impact your schedule (and profit) in a big way.

4) The $250K reno budget suggests major work inside the property.  What was your basis for this number.  Be careful about calculators (even on BP) as prices may not reflect the actual prices for material or labor in your area.  We have put together a spreadsheet for our area and hyperlinked SKU numbers to get real time pricing.  Have you gotten a GC estimate?  What was the basis for the $250K renovation budget? 

I would be happy to discuss details on the property offline if you are interested and see if there are contractors I can recommend to you.

I think many of us went that route and met your contractor or his cousin in our real estate careers.  As you see, if he  is reputable, you will not be paying up front.

As far as options, you can take him to court but depending on where you live, a judgement may just net you satisfaction and not much else.  We had a contractor that we had to take to court, never showed and we got the judgement.  In TN, we found that attorneys would get the money for a percentage and they were able to get it from his bank account.  What he did was take the check we had paid him with and got the guy's banking information when he cashed the check.  He then took the judgement to the bank and cleaned out what was there to cover the judgement.  That might be worth seeing if it is an option in your area.  If not, small claims court if the amount is low enough or civil court if it is higher.  Lesson learned hopefully

As you said, it varies a lot . . . . it depends on the market.  In one of our areas you can buy properties for $40K or less and on a flip make $20K.  In other markets, flippers do not get dressed for $20K but then they are paying $400K for properties.  So it depends on your market and what the spread is between buy and sell.  Thankfully we are not in the 400K and up market as it makes it easier to buy and flip properties.

Quote from @Dave Skow:

I dont do a ton of VA loans but I think max credit allowed is 4% of the price ...so if he is asking for more than that - he will not be able to use all of that amount ....if he has a realtor or lender - ask them to forward a copy of his LE ( loan estimate ) so you can see all his costs .....you can ask his lender what the max usable credit is as well .....my guess is that he has very little money and is trying to get into the property with min amt ....as a seller you are already required to pay many of the buyers costs ( escrow / loan fee / title /inspection

I plan on calling the closing attorney tomorrow to get the closing cost sheet . . . thanks

Quote from @Dave Skow:

@Andy Sabisch- asking for  seller concessions is  very  normal now ....what will the buyers  ltv  be ?  and will they  be  buying it  for a  inv  property or as  primary ?  the  amount of a seller  contribution  is capped  by lenders ....eg.  if they plan to put  less than  20% down and  live in it - a  6% contributuin wont be allowed 

Dave, He is going VA and provided a pre-approval in the amount of the purchase price.  He only put $300 down for and EMD.  It looks like it is a primary property purchase.  6% is a bit steep . . . what would  you counter with . . . was going to contact the closing attorney to see what the closing costs and pre-paids amounted to . . . having an "up to" in front of the amount would be preferrable

Well as the market shifts thanks to the interest rate hikes, the offers one receives also change.  Wanted to get perspective on this offer.  

We have a small flip house that we listed for $98K (I know, market drives price and this is on 2.5 acres and 1200 ft2 but the price is what the market supports).  We received an offer of $95K with a provision that seems out of line . . . wanted your feedback.  The buyer is asking for $5,700 towards closing costs, pre-paids and concessions.  That works out to be 6% of the purchase price.

Now as many of us remember even a few months ago multiple offers over asking price without any concessions was the norm for some time . . . first one of these we have seen in a long time.  

How would you respond to the offer?  The rest of it is acceptable but 6% in concessions?

Thanks

If you do not have a relationship with a contractor, you are not high on their priority list . . . just a fact of life.  You can feel some out for costs and time frame but if you find one that can come right over, there is usually a reason they are not booked.  We found that out in the early days and I usually tell people if you find someone that can be right over, keep calling . . if you find one booked, that is often the one you want.

We have a few that we use almost exclusively and now the quality they provide.  If we need an estimate for say a roof, I know that when I call they want to keep the relationship going and we get the estimate and gets the job if we get the property.  Starting out, we were lucky to get a call back.

As I mentioned before, join your local REIG and see if you can get some contacts that route as the contractors that deal with investors are not always the ones you get referrals from your neighbor

Don't pass up your local REIGs . . . they are a wealth of knowledge regarding the local market that you can't get anywhere else.  See if you can find a BP member in your local area that can feed you some intel as well.  Ask them if they are flipping a property if they would be willing to walk you through it and explain what they found and see as issues . . . a lunch offer can often make you a valuable friend in the local game.

As others have said, this is a strange market we are in and as interest rates continue to climb, the pool of eventual buyers for your property will shrink with more properties sitting on the market for longer periods of time.  For you, especially if you are using hard money, the resulting carrying costs can eat up any profit even when you bought right.  In our local market there are flips that have been on the market for months with price drops made because the sellers waited too long to take an offer - inventory is up and deals are out there to be made.  We have not done a flip since May but have picked up a few rentals with a 20%+ ROI and great cash flow.

Good luck and make use of the resources you have such as BP . . . . knowledge is power and you have a wealth at your finger tips

We have found that Zillow Rental works well for getting potential tenants.  You can use their screening but it is pretty light.

We use Innago for tracking rent, expenses and leases . . . and they have a much better screening tool.  This is also a free to landlords service.

Stessa is another tool you may want to look at for property management