All Forum Posts by: Jennifer Petrillo

Typically "hard money" loans require payments during the loan term. A "private money" loan (I used GroundFloor Finance) can have different terms, such as the 12 month balloon I had, which allowed me to avoid making hefty loan payments during the rehab--but I was confident that we could get the project finished quickly and get it listed, I also knew that there was nothing available in that price range in our local market and I expected it to sell quickly...and it did. Change these variables and I would have been paying back a lot more interest at the end (and making less on the deal!). Also, private money would not fund 100% of the loan and the rehab cost, so we had to bring 40K to closing, this is why flippers must save up some money before jumping in.

Both hard money and private money rehab loans will fund a certain percentage of the purchase and the rehab, I had to submit our GC's estimate to show what the rehab would cost. Then, as the job was completed, contact the loan company to send an inspector to see that the work was completed so the rehab funds could be released to me. This part was frustrating...when you want to pay someone, you want to pay them, but when you are borrowing those funds, you have to wait for the inspector to come then wait for the inspector to submit his report then wait for the loan company to review it then wait for payment to hit your bank account, the process takes about a week each time. Fortunately our GC understood the process and was patient. 

Different deals may call for different financing. We have another foreclosure under contract, closing in 3 weeks, and this time we are using hard money (Rehab Financial Group) and paying 2K a month during the rehab process in order to get 100% of the purchase and rehab cost financed. Why? Because we are using the profit from our recent flip to buy a rental property and I have less available to bring to closing. With this new loan, we are only bringing 12K to closing. The private money loan cost us 14%, this hard money loan will cost us 12%. 

I have found all my foreclosures either on the MLS, on auction sites, or driving by and seeing a for sale sign. We look for pretty distressed properties that have a great profit potential, not just things that need a cosmetic fix up b/c those go really fast in our market and are hard to find (and are also overpriced by the banks). We have bought houses with destroyed plumbing, mold, underground oil tanks, etc. We buy houses that other buyers would turn and walk out of, that's our advantage. The important thing is deciding what price you are going to pay for it and walking away if you cannot get it for that price. I typically start with a really lowball offer just to see how desperately the bank wants to get rid of the house. This new foreclosure was listed at 150K, I offered 120K, they came back with 145K, so I knew they would probably go a little lower, but not much lower, so we counteroffered 140K and they accepted. However, I had already calculated based on repair costs and ARV that I would be happy getting it for 140K--still has enough profit margin in it. There is another foreclosure that I want and I have submitted the same offer--180K--three times since the spring. The bank keeps rejecting me but I don't care, they are slowly dropping their price and I can wait until they get tired of holding the property and take my offer. I have gotten pretty good at estimating rehab costs just from doing this and I am pretty good at estimating ARV just from constantly watching the local market. It is important to know what houses actually sold for, not just what they were listed for. Some sites I use are Auction.com, Williams and Williams, Hubzu. The flip house I discuss above was bought at live on site auction through Williams and Williams (I probably originally saw the listing on Zillow, which is how I search). I was the only bidder physically there with five remote bidders online, having seen the house before the auction was definitely an advantage, the other bidders did not know how high to bid but I had walked through and had an idea of how high to go so I held out the longest. Try to see houses first before you make an offer (whether through a bank or at auction) and figure out your ARV before buying.

Total taxes paid were 4182 (owned the home from 4/18 to 8/31). One way we saved money was to NOT use a seller's agent, we listed the house with Realmart, which is an online MLS listing service. For $300 upfront plus another $150 at closing they list your house on the MLS, you write the description, fill out all the details on their website (how many bedrooms, etc), load up the photos and you're listed! They also provide signs (though we have our own for our LLC), can take photos for you, host an open house for you, etc, but we went no frills. In a strong seller's market, there really is no reason to use a seller's agent, they are just doing paperwork, put yourself on the MLS and let the buyers and their agents come to you!

I used this guy to insure my latest flip, not sure if he does rentals, he is on BP @AnthonyLee Insurance Agent from Red Bank, New Jersey very responsive

Foreclosure bought at on site auction for 147K.

73 day rehab (husband as project manager, also our GC and his team, HVAC guys, floor guy).

Financed with purchase and rehab loan by private (crowdsourced) money lender at 14.5% (our closing attorney was flabbergasted and repeatedly asked us if we understood how high the rate was lol!). Fortunately did not hold the loan for long as the house was listed for five days with 4 showings and two offers (and this was over 4th of July weekend!). House in a D neighborhood so we broke the comps and unfortunately had to drop the price a little when the appraisal came back lower than the offered price on the home but in retrospect there is no way we could have cut corners on any aspect of the rehab--it needed everything!

Purchase price 147K

Listed for 299K, sold for 285 (went under contract for 290 but dropped it another 5K at buyer request after the appraisal just to get out of the deal)

Home Depot credit card: 10K (appliances, fixtures and other things we picked out and purchased ourselves rather than having GC use typical builder grade stuff, also husband did some of the work himself so bought his own materials)

Brought 40K of our own cash to the closing table, loan total when paid back was 185 (original loan 175 plus 10K in accrued interest, 12 month balloon loan so we did not have to make payments during the rehab, which helped a lot with cash flow, also loan had rehab costs folded in so for the most part we paid our guys out of the loan and not our own pockets)

So (numbers are round): 285 sale price - 185 (loan payback) - 40 (cash we brought to closing) - 10 (Home Depot card) - 10 (closing costs) = 40K profit

Work done: insulation and vinyl siding (this ate 18K of rehab budget but was unavoidable as cedar shakes were disintegrating), converted to natural gas heat (ducts already in place, changed out electric hot air blower to gas one and gas company ran the gas from the street for free), replaced AC compressor, new water heater, two new bathrooms, replacement windows, new appliances but left the wood cabinets b/c they were in perfect condition and I could not justify painting/replacing them, new kitchen backsplash, removed wall between kitchen and dining room, wood laminate flooring throughout except for new carpet in downstairs den, painted the deck/railings, new garage doors, one new slider, all solid wood interior panel doors, of course fresh paint and new light fixtures throughout.

dining room

There was moisture damage downstairs from bank not winterizing and pipes bursting...thanks, bank.

Hauled out enormous old woodstove and broke up ugly old hearth and left good flue for someone to add new pellet or woodstove to if they want to, we figured not everyone wants a woodstove and this way the buyer can decide to add one back if desired

Bathroom off downstairs den, chose a walk in shower for variety, hosing off dog or muddy children, disabled access, etc. 

Upstairs bath, kept ugly vanity and top but made it look alright with new faucets, mirrors, lights

Had tub sprayed to match new toilet (it was bright yellow!)

Laundry/utility room downstairs

Bedrooms all done the same

Big project...wouldn't jump into this one without a good contractor who has also seen the place and gives me a detailed cost estimate and is gung ho for this project. I wouldn't not do it, just realize that time is money on a flip and you want a good GC with a good crew that is going to show up and get the job done. Don't overlook the details, they can add up...

I always try to overestimate repair cost and underestimate ARV just for my own piece of mind.

"Cosy" is misspelled and "spacious and cozy" do not really go in the same sentence together--which is it? Spacious or cozy? That said, the inside is really nice, well done, clean. Staging could help, another cheap way to go is to spend a few measly dollars at Home Goods (or the west coast equivalent) and throw some things in it yourself, you can write this off as part of your rehab costs and save the stuff you buy to use in the next flip. Maybe with such a large interior people need to see how the furniture would go in it. I agree with the no curb appeal comments but you're certainly not going to repaint the house now. Can you plant a shrub or two? People want to see something they will be happy to come home to every night.

I would also recommend lose the realtor and use an online MLS listing service like Realmart, we have sold two houses with them. For $300 they list you on the MLS and you save the 3% commission you would have to pay your realtor for doing some paperwork. They will even provide you with for sale signs, post your pics and everything a realtor does. I don't know why more people don't do this and save a ton of money. Then you could drop the price of the house a little since you are not paying a sales commission ($8700, in this case!).

I handle acquisitions, financing and sales of our flips while working FT, it is not easy, especially with a busy job, I don't have lots of spare time during the day to respond to emails, make phone calls, send faxes, etc. Plus the fact that internet access is restricted at my job, I do all my property searches and computer work at home in the evenings. My husband (who is retired) serves as project manager. You could do it solo with a GC you trust and checking in on site after work. I would only do this with a house nearby my workplace or own home. If you have subs you trust, I think it can be done. Have you ever used a contractor on your own home or have someone you can ask for a recommendation?

Look for undervalued foreclosures that can provide a decent profit margin after fixing them up. You can find these on the MLS (whatever search site you use, just check off foreclosures and only those will pop up) or check auction sites. Takes patience but worth it once you find a good deal.

I like the blue...

There is a lot to like here, you clearly did your homework on what appeals to buyers, but I agree with the other writers, the house needs to be spotless clean and also attention to detail is paramount...if buyers see a bare bulb hanging from the ceiling, they wonder where else you cut corners and what they cannot see that might be shoddy. A flip is basically like a new build, that is the level of "newness" that buyers expect.

Also check your comps and consider pricing slightly below since you want to get out of this deal.

What is your listing like? Make sure it mentions all the good things about the house and the neighborhood that might not be apparent to buyers when they visit. 

Please keep us updated!

Look into foreclosures in your local market that you can BRRR (if you are interested in buy and hold) or flip if that is your goal. Nothing beats knowing the neighborhood as far as understanding returns, rehab potential, best areas, etc. Look on auction sites for your options, if you have a good deal, financing is not that hard to get.

Or consider turnkey rental companies where you can invest your money in a home that the company rents out for you. Supposedly decent returns and very hands off. If you don't have much to start out with, consider trying wholesaling or working with a local investor.