Help Me!! I Need Seasoned Advice
OK - so I take a ride through South Philly and see a place that I'm interested in - naturally, I call a realtor in the area for "feedback" on the area and:
1. I spoke to a neighbor (old man) who says "there's alot of drugs around here - shooting every night.
Then I called a Broker who services the area who says:
2. "I would stay away from that area"
THEN I called the distric precinct who tells me:
3. "there's a lot of police activity in that district"
Now I'm looking to FLIP the place, it's an awesome price and a good 80% market value - it needs about $7k of work... I understand that many "Flips" are in distressed neighborhoods but is this normal??? Should I shy away from this?? MOST of the places I saw that were GOOD potential money makers were in not so nice areas... is this what I should be expecting and just go ahead, buy and give it a good price (10% below market)? Do properties actually sell in these "bad" areas?? I HAVE the Moolah! I just need to find out if I should spend it!!
Price + repairs should equal about 70% of FMV (of sold comps).
with only a 10% margin, you'll be lucky to get out of it....let alone with a profit.
You've overlooked:
Closing costs (on both ends)
holding costs
commissions
those add up very quickly.
What's your exit strategy? How are you planning on selling it. Why would someone buy your house instead of the one next door for sale?
generally people who flip, sell the properties at 90-95% of FMV so they can minimize the holding costs and move them quickly.
Not to be a doomsdayer, but sounds marginal, to say the least.
Oh crap, I screwed up.. I said 80% market value I meant below (price could be about 12-13k, market value for the area is about 40k)... my fingers were moving slower than my brain! it can be fixed up etc and at the end of it I would put maybe a total of 19-20 grand into it... I would ask about 35-37k for it.... but it's still in that neighborhood!
sorry for the confusion
hibby76 sounds right to me. $13k + $20k rehab costs = $33k. If you think you're selling for $35 at the low end, seems like a deal to walk away from.
My only advice I can give without seeing the property and the area is: If it looks like a dog, smells like a dog, then you probably have a dog.
take the advice from those around you and combine that advice to make your decision.
just my .02
OK - I just can't seem to communicate today so I will cease.. the 20k I mentioned was the total (buying + fixing up) and the low end sale price would be 35k making it a potential 15k profit... I was interested in if anyone had ever filpped in a crappy neighborhood... that's all... but I will discontinue this post as I can't seem to get my point across (too much coffee I guess)
Thanks anyways!
$.20 cents on the dollar is a TOTALLY different story.
How did you estimate the rehab costs? Most people severly over or under exagerate how much it costs to rehab it. I'd make sure you're under 70% after all is said and done. Over that and it's not worth it.
My only other concern would be to look at the direction of the neighborhood. Right now people live there. If every other house has a for sale or for rent sign on it, and people are up and leaving, then I'd stay away from it.
If people are staying in that area, and vacancy rate is reasonable (10% or better) and people are buying homes then it sounds like a great little project to make a dime off of. [ Edited by hibby76 on Date 11/13/2003 ]
Here is our suggestion, neighborhoods change, and with an increase in police presence, could the property values go UP? Sometimes cash flow is the name of the game. Could you perform a 2 year undeclared lease option on the property with the approach that someone will accept a portion of the rehab in exchange for a small future down payment? If all the moons in the sky aline properly you have created a money machine. Down payment, monthly rental, long term tenant, and the neighborhood could appreciate. Structure the lease option where the future price of the home will be reviewed WHEN the option is executed. If your tenant leaves after 2 years, you have accumulated funds along the way the rehab is complete and you are building equity.
Yes, there may be a few items we overlooked, but the core technique can be used with a few twists.
Keep us posted on your progress.
Eric & Rosa
[addsig]
Thank you for your insight 'classimg' - I'm still doing my homework on it and plan on "circling the block another time or two"
and to answer your question 'hibby' - I know it needs a new roof, it's a flat roof and a rubber one could be about 2k (from what I've heard) - it needs cleaning, sheetrock (which I've done in the past) furnace and a paint job... so far - part of my homework will consist of visiting the place with an inspector who can give me a better assessment (and btw - I'm documenting these details in hopes that other new investors like me can get something from it.. I appreciate all the information I've read on these pages and hope that something I say can help)