Advice for newbie, flip won't profit

[Charles White]

Hello BP members,

Here a newbie from WA that is in trouble. After studying for many months the possibility of buying a house through a foreclosure action I finally did it, and even though I knew about the risk and repeated my self to not make any of those mistakes,  I made them. I'm looking here for a sincere and helpful advice. 

On July of this year and with the help of a bidding company I bought my second flip. This company charged me 3% to represent me in the auction and gave me an overview of different foreclosed properties in the area. They present me this numbers for this house: ARV 460K, rehab cost 40k, decent condition house according to them in a B area, hot market, min bid 300k. This company presents this numbers to the investors one day before the auction, so with the pressure that I had to make a decision and since I have been trying to buy a property for many months without results I made my bid. Result, I got the property for 309k. I was excited since the numbers presented to me made sense, I was hoping to make a decent profit. Next, the day I went to see the house and it was basically a teardown! 7ft Blackberry bushes, leaking roof, carpet had feces on it, wood paneling that was covering a textured wall positive for asbestos, and many many other things that made this house a *hole. Oh, I forgot to mention I got a hard money loan at 12%, 5 months, 2 points with 10% downpayment.

Fast forward to today, new roof, updated electrical system, blackberries are gone with a nice grassy backyard, new furnace, new plumbing, and other things that just keep adding up totaling almost 33k. On the administrative side: payments to the hard money lender, water lien that didn't appear on records for 3.5k. Administrative matters were also on my way; city permits that take 8 weeks to be approved (I haven't even got the building permit yet, and it's already 8 weeks ), labor here in WA is expensive and contractors are busy. Anyways, to make it short, I don't think I will be able to finish in those 5 months and according to my calculations to get this house in a decent condition I will need to spend another 35k ( cabinets, floors, appliances, doors, trims, light fixtures, driveway, siding, drywall, granite countertop) even after that and after seeing how the market is behaving I think I could sell this house for 420000 max, not the 460k I was told. Also, the less I spend the less I will be able to sell it for. 

So at this point, I'm wondering what to do. Should I continue and pay 1 point more to the lender to extend the payment period to finish this property, sell it for 420k breaking even if lucky? Should I try to sell now, but who would like a house like this or maybe cashout refinance after done and rent it out for a while ( rent in this area for this type of property is from 1900 to 2k a month) leaving some money on it? I would really appreciate your output/advice/ creative solution. Thanks

[Nghi Le]

Been down this road before :-)
We've once held a flip for 2.5 years... with 3 different hard money lenders.  Extensions and refinances are pretty expensive.

@Albert Bui He's definitely going to lose money.  I believe he only stated his rehab costs, not his loan costs, holding costs, or acquisition costs (i.e. the 3% of the tax-assessed value up front).  Plus his extension fees...

@Account Closed What is your all-in cost right now (including loan costs, holding costs, insurance, taxes, etc)?

And I'm guessing that you'll have to pay a full agent commission on the sale since you purchased through them?

Our first flip actually came from the auction (with the same company you used).  Ironically, that was one of our more most successful flips to date.  However, we saw all of the things that could have gone wrong and have since decided to avoid the auction.

What city is your flip in? Or do you have the address? We can help you confirm some of your rental numbers and ARV.

I've always believed that if you hold real estate long enough, you'll eventually come out on top.  The question is just how long will that take?  If doing a regular rental won't work due to negative cash, you can try to see if it'll work for AirBNB, or you can lease-option it.  All of these methods will require long-term financing, and Albert can help you out with the refinance.  Unless you can't qualify for conventional refinance, then PM me and I can help point you towards some non-conventional lenders / secondary financing.

Another note... because of how/where ESF gets their funds from, you won't be able to go longer than a year on the loan (i.e. you can't do infinite extensions).  At that point, they get very foreclosure-happy.  So try to start the refinance process (either with a conventional or non-conventional lender) right after you finish rehab.  You can always decide not to go through with it if you do sell.