Property Flip Question
My friend and I are seriously looking into a house to flip. My question is...what is a reasonable profit for a first house flip. Here are the numbers and you can tell me if it is worth it.
House price $130,000
Closing 5K
repairs and maint $10K
Bringing the total price to $145K
R/E guestimatess $165K after work is done (I'm skeptical).
$20K profit minus the $10K realitor fees
So $10K total for both of us...minus taxes/inspection/appraisal fees we guestimated about $6000ish after that stuff.
Is this what can be expected or should we keep shopping around?
Hello. Are you taking into consideration closing costs on selling side as well as carrying costs?
Perhaps you can ask the seller to reimberse for the repairs.
Good investing,
Alexander.
Well the buyer has already stated he didn't want to do any repairs and has already turned down an offer for $129K. The only thing this place has going for it is the lot size and the location. The house is pretty small, but has a huge yard, so I think we'd have trouble renting it out for the amount of the mortgage payment. It bothers me that half of our profit is eaten up by the realtors. Which got me thinking about getting my Real estate liscence and do some research into what I would need to do to buy and sell proprties.
Flipping is a simple process... except when realtors get involved. t can get messy and expensive. If you're serious about flipping, try dealing directly with owners and retailers. Your spread will increase and you headaches will decrease.
Regarding the last post - if you opt to work directly with the sellers and buyers rather than with a realtor should you have an attorney look over all of the paperwork? Or just the first time to make sure that your contract covers everything. I'm wondering because attorneys can be even more costly than realtors.
As for the original post - my personal opinion is that on a deal for this amount that involves repairs you should have a net profit of about $20k.
Keep shopping around, if you're looking for a property to flip! There's no room in there for another investor to make anything unless you're going to pass it along for nothing and even then it's not that good of a deal. You would need to pick that property up for $115,000 minus rehab MINIMUM in order to pass that along. In addition, are you paying the R/E agent? Should come out of seller. Or are you talking about the commission for the R/E agent to sell it for you? That wouldn't be a flip. You need to be able to say, "hey rei's, I have a property for $120K, clear title, certified home inspection, written bid by my licensed contractor for $10K in rehab, and a ARV appraisal by certified appraiser for $165K. Buy from me for $120K, put $10K in it, take away $37K." - roughly.
That's a flipper!
You still haven't addressed carrying costs.
What will your monthly mortgage and taxes be?
Of that $6K you and your buddy will net, floating a mortgage for a few months will eat away at your profit.
And floating it for any longer could leave you guys in the hole.
Plus, there's a very good chance your cost estimate for rehabbing will wind up being low. When rehabbing, expect the unexpected.
Another thing to consider is the wild card aspect of selling. There's absolutely no way to gaurantee that you'll get the listing price you'll be asking when you go to sell. What if it's a few thousand lower than you expect? There goes that profit.
Problem with clearing $6K is there's no margin for error. You'll clear $6K only if everything goes perfectly. Guess what...it never does.
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Should come out of seller. Or are you talking about the commission for the R/E agent to sell it for you? That wouldn't be a flip.
Yes that is what i was talking about.
hey rei's hey rei's, I have a property for $120K, clear title, certified home inspection, written bid by my licensed contractor for $10K in rehab, and a ARV appraisal by certified appraiser for $165K. Buy from me for $120K, put $10K in it, take away $37K." - roughly.
How do I accomplish all that without actually buying the house? I have a lot to learn
You still haven't addressed carrying costs.
What will your monthly mortgage and taxes be?
We figured the monthly cost/taxes/insurance would be around $800/month using a 3 year arm. We had a serious discussion about this and decided to pass on this house and keep an eye out for a better deal.
I also think this deal is too marginal. I am a year into my business and felt the pain you may feel if you went with this deal at that price. I was anxious and did not stick to my guns and guess what my first rehab was for a loss because it took longer than expected to sell. After that fiasco I developed a spreadsheet that identified all potential costs and it works backwards to an offer price. After I fill it out I stick to my price calculated and never 2nd guess it unless there is a real good reason to. I have done this with sellers similar to yours and guess what if they don't take the offer at your price then let it go, 1 out of 4-6 times they come back weeks or months later asking me if my offer still stands.
Tbarber
No way to pull a profit that way on this one, but on future properties you might consider a short sale. I just did one of these - bought the house for 70K, fixed & sold for 133K. If I had been even smarter I would have saved myself the headache and sold it to another investor for 95K. Even after paying a realtor & closing costs I would have made about 13-14K - just no construction headache.
At 95K the other investor would have gotten a great deal too. Just a thought for future reference...
Another thought...
Even though I do my homework very thoroughly & use conservative figures, I will not do a deal if I won't make at least 15K. It's not worth the risk unless you have excess cash to get rid of.
on this deal you should at least make $30,000
You'd have to offer $100,000 or lower to make this one work.
good choice at leaving this one behind you.
JB
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