All Forum Posts by: Dean I.

@Ben H. Just sent you a PM.

As others have said, probably not for a lower end flip. However, it really does depend on your market and what your competition is doing as @Will Barnard pointed out. It also depends on how quickly the houses are currently selling and if it is a buyers market or a sellers market. If it is a buyers market, then you may have to. If it is a sellers market, you probably won't have the house on the market for long enough to stage. 

There are a couple things I would point out though. While a general rule of thumb is not to buy houses with awkward layouts that can't be changed, if you happen to do this, then you probably want to stage the house so that the prospective buyer can see themselves in the home. When dealing with awkward spaces, it is hard to imagine how to use them, unless someone has already laid it out. 

Also, smaller homes (not necessarily cheaper homes) could also benefit from staging for the same reason. With less space, it can be harder for a prospective buyer to invision fitting everything into such a small home.

Finally, I would have to agree with @Kenny Lee on there being issues with appraisals, even if there are multiple offers above the ARV, you would have a hard time getting it appraised on a lower-end home. With higher-end homes, it seems that there is a more wiggle room for pricing above typical market value. But again, this could be market specific and I am only speaking from what I have read and seen.

@John King

Unfortunately, most buyers are not going to be Pre-Approved, at least not around here. While I do agree that lenders should do underwriting up front and pre-approve their clients first, this is not yet common enough to pass up offers from those who are only Pre-Qualified. In my area, 90% of buyers will be Pre-Qualified, not Pre-Approved. There are only two lenders in my area that pre-approve their clients first. If I passed up every offer that came in from a Pre-Qualified buyer, I probably wouldn't have sold my first house and thus I wouldn't have a second, third, fourth or fifth house currently under contract, in rehab or on the market. Again, I think this is more market specific, but I hope it becomes a more common practice.

As for the cash offer vs funded offer, I agree that cash is king, but unless we are talking about houses that are much more expensive than 150k with much higher profit margins, I don't think that accepting a cash offer and losing 15k in profit is worth it. The facts are, over 14k of homes are sold every day, most of them funded by banks and most all lenders are going to require an appraisal, regardless of the price. If you did your comps right, you shouldn't have to worry about the appraisal coming back for much less than you estimated. In fact, if you did it right, you should come up with the same number or less, making lender approval a non issue based on value. And unless you have 10k to 15k worth of repairs that you neglected to do during the rehab process, I doubt you will get negotiated down much more than a few thousand dollars. 

Now, I would accept an offer for 5k less if I felt I was pushing the comps, or if the house has been sitting on the market long or if not having that house under contract was causing me to lose other deals. But losing 15k in profit is hard to swallow when your profit margin is 20k or less. Even if there was 30k or 40k of potential profit, losing 15k just isn't practical. As far as I am concerned, if you lose 15k in profit at that price range and at that profit margin range, you did something wrong.

Like others have said, if you agreed to the price, then you didn't ripped off. Now if he promised you one thing for that price and you got another or less quality, the you would have gotten ripped off. But keep in mind also that it is up to you to do your due diligence. If you chose not to get multiple bids, then really you have no one you can blame but yourself.

Cash is great when you need it, but leveraging other people's money  (the bank or hard money lender) is even better. Using a lender to fund your projects not only allows you to to do more with what you have (ultimately making you more money in the long run), but it also helps you to spread the risk. For instance, in the case of flipping houses, with 150k, you may only be able to flip one house. If that flip ends up being a failure you could potentially lose all your money. But if you use a lender, you can flip 4 or 5 houses with that same amount and even if you lose money on 1 or 2, but profit on the other 3 or 4, you will still come out ahead of the game.

Also, if you plan on building a portfolio, meaning that you will be investing more regularly in the future, then you will have to use lenders at some point and you might as well learn now.

Finally, there are some cases where you will have to use cash (just had to last week myself), but unless it would be a very fast flip or if you plan on holding on to it as a rental, I would refinance it asap to get your money back out so you can use that money to get more deals and make more money.

Note: With a high income and lots of money in the bank, I would call every bank within a few hours of you and find a bank that will fund you, rather than using hard money.

I suggest paying for an education. Here me out. When I first started, I paid a contractor to go with me to several distressed properties so I could learn how to estimate repairs. I knew I was likely to get the these properties, but that didn't matter. All I wanted was the education.

Find a reputable contractor or 2 two, pay them by the hour and write down everything. Visit as many properties as you can and ask as many questions as possible. Get prices for specific projects, general sqft prices, linear foot prices and sqaure prices. You may even be able to get general sqft prices for different levels of rehabing. For instance, I know I can estimate around 20 per sqft of the whole house for a general rehab that includes paint, floors, new bathrooms, kichens, etc. From there I subtract and add anything that would not normally be included in that price. Don't use my prices though, yours will probably be very different.

Check out these properties yourself, before dragging them out there and make sure you have a good variety of repairs and modifications to get prices for. 

Finally, I would find a contractor that has experience working with house flippers or investors. Make sure they know that you plan on investing in a lot of properties, and if you are happy with their work, you will keep using them.

a sage green will typically work with that color of roof, but you need to accent it and more than just the door, shutters and trim. Usually you want to paint other sections of the siding in a different color or install vinyl cedar shingle shake at the peaks with an accent color. Usually a brown, certain reds and sometimes a darker version of the green can be used.

In general, greens and blues are hard to do on the exterior without other pops of color.

A light to mid tone grey may also work and generally won't require major accents.

Look on Houzz for ideas.

@Thea Linkfield

1. All my lenders are local-ish banks. When I first started, I called all the banks I could find without 4 hours of my location and visited as many as I could as well. The first one I found had an office here, but not a real bank, they are located about an hour away form me. The other two are local, but they wouldn't even consider me until I had almost 2 years under my belt.

2. I do my best not to mix personal with business, that said, no one on my side of the family really has any money and I didn't even want to approach my wife's family until I had a proven business model that I was successfully executing. Even then, I still don't plan on asking her family unless I absolutely have to. As for friends, I don't have any that have any money.

3. The appraisers I am talking to are the appraisers my bank uses to make sure that the house is worth funding. I don't know if there is a good way to talk to the appraiser on the buyers side, unless the buyers doesn't mind you having that info. I guess all you can do is ask, but chances are, the answer will be no.

4. I basically have a project manager that uses his contractors from some things and I use my contractors for other things. I was a contractor in my previous life, so I am quite familiar with how things are supposed to be done and when it is not being done properly. If I didn't have that experience, I would use a general contractor or the equivalent. 

5. Yes. I don't see a reason to use multiple LLCs at this point. If my business plan was to buy and hold and I had a lot of properties, then maybe, but then I would also be renting them out, which would be a different business model anyways. Obviously, I will be conducting my house flipping business under a different LLC than my rental business.

As for your current situation, I personally would sell the house for at least the appraised value or the value that your real estate agent came up with during their CMA. I wouldn't sell it for less unless you had to. Also, this is a good time of the year to sell. From what I have seen, houses generally sell faster and for more during this time of the year, then say the fall and winter months.

@Ola Dantis @Account Closed

Luckily for me, I wasn't under any impression that flipping houses was anything like you see on TV. I have had multiple businesses over the years, one of which I was a contractor. So I am quite familiar with the fact that things are rarely as easy as they seem and I didn't go into this venture with rose tinted glasses. Sure, I have some expectations that were not met, but those expectations were set because of my previous experience as a contractor, the research I had done and the experience of those who have gone before me. I also realize that we are dealing with the law of averages, meaning that sometimes things go great and other times, not so much. But on average, you can expect certain outcomes, as long as the appropriate steps are taken.  

@Ranjit Wasu

A lot of people use the 70% rule, but I personally don't. 

The first number you need to know is the ARV, once you know the ARV, you need to subtract the closing costs (for both purchase and sale), your holding costs (4 to 6 months), the renovation costs and what you want to profit. After subtracting those amounts from the ARV, you now have your maximum offer.

After doing some research and talking to your agent, you should be able to figure out your closing and holding costs and narrow it down to a percentage of the ARV. For me, it is 15% to 16% and I always estimate conservatively.

As for rentals, there are a lot of different methods for determining whether or not a property would make a good rental and how much you should offer on it. I typically use the BiggerPockets rental calculator, but it's basically a matter of taking your average rent price and subtracting your monthly expenses. If there is money left over at the end of each month, then it cash flows. If not, then you need to offer less for the property. Don't forget about other costs like Cap Ex and repairs and maintenance. It will eat into your cash flow and if you are not careful, you will buy a property that you will lose money one each month.

Around here, It is hard to find a property to cash flow for more than $50 to $100 a month per door after figuring in all the current and future expenses, but as long as the property cash flows and is in a decent area, then I am happy to pick it up. My main concern is the offsetting my other income using depreciation.

I should also note that I am not an expert by any means, but I have done my home work and this information should be pretty consistent with other investors experiences. 

@Account Closed I always consider a property as a possible rental for the sake of an exit strategy. Right now, my focus is flipping houses. However, I will be picking up rentals this year as well, in order to offset my income. I will be focusing most of my efforts on multi-family homes, but I will also pick up single family homes that don't make sense as flips, but work well for rentals. My eventual goal is to do a 1031 exchange on these rental properties and pick up some apartments.