All Forum Posts by: Elise Bickel Tauber

I have seen so many posts and scam programs from people who can help you "get rich quick" by flipping homes talking about using "other peoples money" to flip homes. Well, as an investor and agent of almost 20 years let me tell you what I've seen from first hand experience myself (between deals I've personally done and deals my client has done) and what you need to know before taking the leap!

First, risky investments, like flips, aren't cheap. So if you aren't using your own cash, you are going to pay....out of your nose! And especially your first couple of deals, your rates and fees will be higher than someone who has done a dozen deals. You are a risky investment and someone who is loaning you $100-$200k or more is going to make sure they make it worth their while. We have worked with standard lending, rehab investment, and hard money lenders all with different requirements. I personally like rehab investment strategies because you can get in for as little as 10% down on the purchase and finance up to 110% of the rehab costs. Which means, if you are buying a home for $100k and the rehab is $100k you would need $10k (plus closing costs if applicable) for the financing. That is a very low investment to make for a $200k rehab. 

Once you decide on the lending, where are you going to get that money? Well, I am not a fan of using other people's money for this. I have seen so many of those programs where you convince others to basically loan you money for your flip. What happens when things go wrong? You will already be struggling to keep everything together your first couple deals, do you want to have the pressure of the bank, the market, struggles with the renovation, and then another person breathing down your neck to return their money? Now I'm not against having a partner, but it does get difficult when you have someone you don't know well loaning you money and they are worried about their return.

What type of property is good for your first flip? No matter how tantalizing a large reno with big project margins look for your first deal. Don't do it! Just don't do it my friends! The bigger the project, the bigger the chance that things will go wrong. Do your first flip or two with basic paint, flooring, light fixtures, and maybe a kitchen update. Maybe the margin is only $10-$15k profit when it's done. It's better to take the chance on that than to take on a big renovation with a $60,000 profit margin and next thing you know you are significantly over budget and you have unexpected costs that eliminate the profit anyway. For your first 3 deals, expect to make nothing. Just hope to get your money back and not loose anything. Deal 4 is when you should have the experience and teams in place to be ready to make some money. Everything before then is a learning experience.

The biggest piece of advice I can give is that flipping properties is NOT for the weak of heart. If it was guaranteed, everyone would do it. It is stressful, a calculated risk...but a risk none-the-less. I know investors who flip 5-7 houses a year and can easily live well off of that income. I know others who are struggling with every deal they put together. 

Have you stuck around this long? 

Want to see a real world example?

116 Ravilla Ave in Carrick PA
I recently anazlyed this for an investor who was thinking about using this for a brrr. 
The property is a 2 bed 1 bath in Carrick and is listed at $70,000. Carrick (where I have personally flipped before and love this area) is currently considered a B+ area. Not sure how to find this info? Of course I recommend a local agent as part of your team to do this research for you but if you want to search on your own, I had another post where I shared links including niche.com that can help with area ratings.

At first look from photos, the expected reno is $20-$30k for a mid-grade flip. Paint, flooring, bathroom, lighting. Nothing major. 
When I look at ARV numbers, I only use sold properties from the last 6 months. Don't go back 3 years. Don't use z-estimates from neighboring properties. Don't ask your Uncle Bob his thoughts. You need sold data. In addition, be mindful that if a property sold last week for $220k and used conventional, or better yet, FHA financing for the purchase, that bank had to appraise the property and was able to find that value before lending. This is all good when you are looking to re-sell. The comps for this property are showing $130-$150k. I always plan for the lower end.

$70,000 purchase (if you purchase at full price which hopefully, in today's market you don't have to).
Down payment : $7,000
Closing costs (assuming seller will agree to sellers assist) : $2100
Out of pocket cost : $9100

Resale price : $130,000
Closing costs when you sell : $12,000 (there is 2.5% transfer tax in the city in addition to standard closing costs and commissions)
Renovations : $30,000 (use the high end of course)
Purchase : $70,000
Closing costs when you bought : $2100

Potential Profit : $15,900
Estimated time for renovation is 1-2 weeks. Days on market in this area is under 30 days. Average time from signed contract to closing is 30 days. So in 3 months you could turn $9100 into $22,900. I think thats pretty good! But of course, for your first few, Just be happy if you walk away with the $9100 you put in additionally.

I hope that helps anyone looking to invest! 

Really it comes down to the numbers right? When in Due Diligence have a thorough inspection and get estimates for any work that is needed now and potentially in the next 3-5 years. don't forget about the tax benefits to doing the work upfront. If you are worried about out of pocket costs, see if maybe a rehab loan is an option to get everything needed done now and refinance in 3 months when everything is complete. Plus you can upgrade inside if needed to get higher rents. Hopefully that helps a bit!

Hey Dan,

Also a realtor here in Pittsburgh. I have a lot of clients who are picking up STR in and around Pittsburgh. I have found that the investors who are the most successful are those either buying in trendy areas like Lawrenceville, Strip District, Troy Hill, Near the casino, etc or those who are right on the river. I even have a STR up the river a ways just north of Fox Chapel that does really well. Hopefully that helps!

One question I get asked a lot by investors who I'm working with is "What are good areas?" 
Well, as an agent I am limited on how to respond. And I also dont like just giving a blanket list of high demand areas because the areas are always changing.
I just wanted to share a couple resources I use daily to keep an eye on our market, Pittsburgh PA, and a handful of investments over in Philly. 

When it comes to crime statistics and area ratings, My #1 go-to is https://www.niche.com/places-t...
I really like Niche because it not only gives a general area rating, but school ratings, crime, housing, diversity, and nightlight. It gives a lot of information about average home prices for sale and rent, population, crimes (and what categories of crime), and job rating. This is updated regularly and keeps a good pulse on real time rating.

For rent values, I do use a mix of our mls system, my database of currently looking renters, and then the website below. Since I know most investors don't have the mls or an active renter pool, I would heavily look at this site : https://www.rentometer.com/
Rentometer is nice (especially if you do the pro option), because it will give you an average rent range along with the comps it uses so that you can look at each comp and compare it to yours. Overall I think the rent amounts are very accurate. You do need to be careful, especially in the city, that your range isn't too large, because if you use a 2 mile radius you may end up pulling comps from a much nicer (or worse) area that can skew the results.

Hopefully those sites help!
What other resources do you recommend?

Fantastic! Sounds like you are making a great decision when it comes to investing. Best advice I can suggest for someone looking to house hack, in addition to finding a good lender and saving for a down payment, is to research the areas you are looking to house hack. In addition to finding a place that you want to live, you need to be mindful of the areas and their growth/decline for future investment. I can tell you personally i have a few investors who are pulling out of South Side quickly because the market there is slowly declining. It use to be an A area but now is B (in my opinion) which I am basing off of crime, rental desirability, Days on market for flips, etc. Keep an eye on areas like Bellevue, Avalon, Brighton Heights, etc that are near the new Esplande Development as well as any other area with major growth or steady appreciation. Also, I know some people really like room rentals but I would steer away. It is much harder to find good, LONG TERM tenants in a room rental versus a duplex/triplex. Room rentals have much higher turn over from my experience where often our tenants in a nice duplex/triplex stay 2-4 years or longer.

Hope that helps and congrats!

I agree with the above. Landlord tenant laws are set by the State. What are you specifically looking for? There are additional rules/laws for magistrates etc when it comes to certain things. Is it eviction? Deposits? etc? 

Oh how many things we have had tenants leave behind...guns, ammo, family heirlooms, the list goes on and on. The most expensive? Drugs. Tons and tons of drugs. The police came and got it and said that it was worth probably $80-$90k. Just wild that it was left behind.

Just thought I'd throw in my two cents. When I talk to investors about purchasing investments in C- and D areas we have the discussion about the risk. That is what this comes down to. There are investors who love A areas that barely (or sometimes doesnt at all) cash flow. The cost to purchase the property is so high compared to the rent cost that I dont understand how it makes sense. But those investors like the idea that someone will pay their mortgage and expenses while the property they purchase increases in price and that is how they build equity. The A+ areas are very low risk and they are happy with slow and steady. Most investors I would with like B/C areas where the risk is minimal. You are going to have relatively good tenants, get a little cash flow each month, and the properties are increasing in value. C- and D areas are like putting it all on Red. It's 50/50 if you are going to walk away doubling your money or loose it all. When we are working in these areas from a management perspective you have to be very very thorough when screening tenants. It's more than just credit score. Look at their job history. Do they jump jobs? Are they moving rentals constantly? These are indicators of someone who wont be a solid/stable tenant. And more importantly then anything, you need to absolutely make sure the management company you have in place is aggressive. Are they walking the property 4 times a year? Are they filing eviction the very first day they can and when they win filing possession the very first day they can? You need a company that is on top of it so that when the not great tenants slip through, you can get it rectified asap. 

I do agree there is a lot of politics involved, areas do go street by street, and you can't overimprove in these areas. 

Hopefully that all helps!

Hi Steven. Question for you. When it comes to rehab loans, if the purchase is 100k and the rehab cost is 100k. Does that mean you would loan up to $200k? 90k for purchase and 110k for rehab? 

Also, what are the credit score limits or anything else we need to know. I work with a lot of investors and would like to be able to give them the info.

@Taylor Dasch yep. I use to use 10% all the time but it seemed like it was always being used up so I have started to plan for 10-20% especially on reno jobs that are less expensive. For example, if the reno was $30k I'm going to plan for 20% versus if the reno budget is $110k then I'll only do 10%