Fix and Flip start-up real est investor from Frederick, Maryland

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Fix and Flip start-up real est investor from Frederick, Maryland

Account Closed
MD · Member since 2018 · 195 posts · 53 votes

Hi everyone! I am glad to have found this forum! Ever since registering here in September of the last year, I was quietly reading the posts, absorbing the information, sending contact requests to fellow investors, talking with realtors, playing with hard money calculators, searching properties and basically trying to get myself educated and able to comprehend some basics before plunging in.

Now, hesitation is not my problem. Once I get the understanding of the situation I am wiling and able to jump in. However, I have a feeling that I have chosen a wrong time to get into this business.

As a start-up with have very limited resources (I can afford to $170,000.00 in TOTAL project costs*, may be $200,000.00 if I stretch myself too thin and take the extra risks with no reserve capital left for any unpredictable, unknown and adverse occurrences) . And it seems that market is over-saturated with money , with a lot of investors out there, all at once trying to flip properties , with inventory too low for no economically justified reason), and it could be a matter of time before real estate gets the wake up call and dives down for correction, as stock market did in October through December of the last year.

Am I wasting my time trying to get into this business with resources I have? Or is there still a realistic way to make profit and flip with $170,000 in Maryland? Are there any seasoned investors willing to share their perspective on it?

I don't want to just unload a ton of money on marketing and find out that too many others are doing the exact same thing and the return is zero due to market being too hot and over-saturated with too many investors making irrationally high offers and competing against each other at a time when market is on the verge of the next crash.

Please kindly share your thoughts and let's exchange some ideas and see if anything can be done by a start-up in a hot market we are in right now.

Thank you!

Eric 

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*Costs including purchase of the property, closing costs, carry over costs/high interest hard money loan payments/insurance, rehab costs, closing costs at sale and etc.

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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
7y
Originally posted by @Account Closed:
Originally posted by @Russell Brazil:
Originally posted by @Account Closed:

@Christopher Haynes, I am considering flipping in Baltimore. The key is to find property at 60-70% of AS IS value, or 70% of ARV minus repair costs. If property is priced similarly to neighboring homes/comps, then you can't profit by fixing and flipping it, you are better off to buy and hold/rent. But I am actively looking everywhere, including in Baltimore.

@Matthew Paul, yes, finding a deal is the top priority. 

 60-70% is what you might have seen a decade ago. If im not mistaken, when a lender is underwriting right now they are looking at 80%. @Andrew Michael or @Jared Sleeth....what are you guys underwriting at right now? (Im on my cell so tag function wont work, if someone can tage them for real that would be great)

Those 2 guys underwrite more flips in Baltimore and DC than probably anyone else alive.

 Hi Russel,

To profit on fix and flip you need to get the property at 60 to 70% of AS IS or 70 percent of ARV minus repair costs. If you get approved for 80% you may end up making no profit at all. But it could work for buy and hold/rent.

 Markets change. Margins change. When hard money costs were 5 pts and 15% a decade ago, a larger discount was what you needed to flip. Today, prices are stronger, demand is higher, and hard money costs are 8%, and frankly most flippers in the area are using cash.  Trying to find a property for 60% minus repairs simply hasnt existed since a decade ago. While I no longer flip, I help people buy and sell flips month in and out, and 2 of my good friends who I tried to tag there like I said underwrite more flips in the DC and Baltimore area than anyone else on the face of the earth.  Thats not an exaggeration, thats a fact. They can tell you exactly what percentage exists in the current market. I simply look at acquisition price and sales price, as thats the only thing that matters for my purposes.  On a lower priced property you will need a larger percentage spread, and on a higher priced property that spreads a much lower percentage because as a dollar value, that number is still very large.

[email protected]301-893-4635Podcast Guest on Show #192
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WebsiteView Page
4Reply
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  • Chandra Minter
    Investor · Richmond VA · Member since 2015 · 20 posts · 4 votes
    7y

    In reading your concerns regarding the market, have you considered other ways of investing your $170k in real estate outside of flipping until the market correction happens?

    1Reply
  • Account Closed
    OP
    MD · Member since 2018 · 195 posts · 53 votes
    7y

    I know I can buy and hold, try to rent. But, I don’t want to deal with tenants. My sister had two condos in MoCo and constantly struggled with non paying tenants. I would get into it if I could own 10 or more rentals, letting a management company deal with tenants. And if I had some vacancy or non paying tenant to evict, I would consider it s cost of doing business. But I can’t afford vacancy/non paying tenants with limited resources I have.

    I also know I could wholesale, but it’s the same as flipping when it comes to finding a property when market is hot.

    I am not aware of other ways of investing 179k in RE.

    0Reply
  • Christopher Haynes
    Investor · Baltimore, MD · Member since 2015 · 71 posts · 24 votes
    7y

    @Account Closed have you considered flipping in Baltimore 

    1Reply
  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    7y

    You can fix and flip in Maryland . BUT , you have to find a deal , they rarely show up on the MLS . I fix and hold and all mine are word of mouth .

    1Reply
  • Account Closed
    OP
    MD · Member since 2018 · 195 posts · 53 votes
    7y

    @Christopher Haynes, I am considering flipping in Baltimore. The key is to find property at 60-70% of AS IS value, or 70% of ARV minus repair costs. If property is priced similarly to neighboring homes/comps, then you can't profit by fixing and flipping it, you are better off to buy and hold/rent. But I am actively looking everywhere, including in Baltimore.

    @Matthew Paul, yes, finding a deal is the top priority. 

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y
    Originally posted by @Account Closed:

    @Christopher Haynes, I am considering flipping in Baltimore. The key is to find property at 60-70% of AS IS value, or 70% of ARV minus repair costs. If property is priced similarly to neighboring homes/comps, then you can't profit by fixing and flipping it, you are better off to buy and hold/rent. But I am actively looking everywhere, including in Baltimore.

    @Matthew Paul, yes, finding a deal is the top priority. 

     60-70% is what you might have seen a decade ago. If im not mistaken, when a lender is underwriting right now they are looking at 80%. @Andrew Michael or @Jared Sleeth....what are you guys underwriting at right now? (Im on my cell so tag function wont work, if someone can tage them for real that would be great)

    Those 2 guys underwrite more flips in Baltimore and DC than probably anyone else alive.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
    2Reply
  • Account Closed
    OP
    MD · Member since 2018 · 195 posts · 53 votes
    7y
    Originally posted by @Russell Brazil:
    Originally posted by @Account Closed:

    @Christopher Haynes, I am considering flipping in Baltimore. The key is to find property at 60-70% of AS IS value, or 70% of ARV minus repair costs. If property is priced similarly to neighboring homes/comps, then you can't profit by fixing and flipping it, you are better off to buy and hold/rent. But I am actively looking everywhere, including in Baltimore.

    @Matthew Paul, yes, finding a deal is the top priority. 

     60-70% is what you might have seen a decade ago. If im not mistaken, when a lender is underwriting right now they are looking at 80%. @Andrew Michael or @Jared Sleeth....what are you guys underwriting at right now? (Im on my cell so tag function wont work, if someone can tage them for real that would be great)

    Those 2 guys underwrite more flips in Baltimore and DC than probably anyone else alive.

     Hi Russel,

    To profit on fix and flip you need to get the property at 60 to 70% of AS IS or 70 percent of ARV minus repair costs. If you get approved for 80% you may end up making no profit at all. But it could work for buy and hold/rent.

    0Reply
  • Kyle Ferguson
    Developer · Amherst, MA · Member since 2018 · 35 posts · 7 votes
    7y

    You could probably boot-strap a marketing campaign and do a test batch of about ~100-200 mailings to test the market. Could cost anywhere from $500-$5000 depending on how you do it. What did you have in mind for a marketing campaign?

    0Reply
  • Account Closed
    OP
    MD · Member since 2018 · 195 posts · 53 votes
    7y

    I am here basically to ask what has worked or works for start ups 

    0Reply
  • Christopher Haynes
    Investor · Baltimore, MD · Member since 2015 · 71 posts · 24 votes
    7y
    @Eric N. I'm going to send you a PM
    1Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y
    Originally posted by @Account Closed:
    Originally posted by @Russell Brazil:
    Originally posted by @Account Closed:

    @Christopher Haynes, I am considering flipping in Baltimore. The key is to find property at 60-70% of AS IS value, or 70% of ARV minus repair costs. If property is priced similarly to neighboring homes/comps, then you can't profit by fixing and flipping it, you are better off to buy and hold/rent. But I am actively looking everywhere, including in Baltimore.

    @Matthew Paul, yes, finding a deal is the top priority. 

     60-70% is what you might have seen a decade ago. If im not mistaken, when a lender is underwriting right now they are looking at 80%. @Andrew Michael or @Jared Sleeth....what are you guys underwriting at right now? (Im on my cell so tag function wont work, if someone can tage them for real that would be great)

    Those 2 guys underwrite more flips in Baltimore and DC than probably anyone else alive.

     Hi Russel,

    To profit on fix and flip you need to get the property at 60 to 70% of AS IS or 70 percent of ARV minus repair costs. If you get approved for 80% you may end up making no profit at all. But it could work for buy and hold/rent.

     Markets change. Margins change. When hard money costs were 5 pts and 15% a decade ago, a larger discount was what you needed to flip. Today, prices are stronger, demand is higher, and hard money costs are 8%, and frankly most flippers in the area are using cash.  Trying to find a property for 60% minus repairs simply hasnt existed since a decade ago. While I no longer flip, I help people buy and sell flips month in and out, and 2 of my good friends who I tried to tag there like I said underwrite more flips in the DC and Baltimore area than anyone else on the face of the earth.  Thats not an exaggeration, thats a fact. They can tell you exactly what percentage exists in the current market. I simply look at acquisition price and sales price, as thats the only thing that matters for my purposes.  On a lower priced property you will need a larger percentage spread, and on a higher priced property that spreads a much lower percentage because as a dollar value, that number is still very large.

    [email protected]301-893-4635Podcast Guest on Show #192
    District Invest Group545 Reviews
    WebsiteView Page
    4Reply
  • Jack Seiden
    Real Estate Agent · Washington DC · Member since 2016 · 847 posts · 656 votes
    7y

    Honestly cheap flips are very hard because 1. Construction costs are more or less fixed regardless of ARV. 2. I run anywhere from 50-80k in just overhead realtors taxes/recordation on both sides and interest (using a line of credit at 4-6%} and you need a fat spread to cover those costs. I've found around here it takes min 175-200k spread to make a profit but in order to hit that at below 200k you would need 50% off arv which is very hard. At that price point rental might make more sense

    1Reply
  • Account Closed
    OP
    MD · Member since 2018 · 195 posts · 53 votes
    7y

    @Jack Seiden, I have entered numbers into hardmoney calculator, I figured that even with 15% interest you can make a decent profit flipping low priced properties. For example, if property has ARV of $150,000 and you need to spend a total of $105,000 to purchase and rehab it, you can walk away with $15,000 - $20,000 profit, your carry-over/interest/closing costs consuming $25,000 to $30,000.

    If you purchase property for $50,000 your closing costs are under $5,000 when you buy it and around $7500 when you sell it for $150,000 in 6 to 9 months, and your interest payments should be around $1,187.50/mo (15%, VERY HIGH APR hard money loan), based on $95,000 loaned. I am not using hard money calculator as I type these numbers, they are very raw estimates, but the point is you can make money on low cost property flips IF you buy at good price and IF comps are high enough (purchase at or below 70% of ARV minus rehab costs). You have a problem if comps are too low or if you buy for a retail price, which is what happens when too many investors compete against each other and market is too hot. I believe the main challenge in current market is to find a deal, particularly in low entry price areas. My question is: do start-ups with limited resources under $170 still have a chance in this market? If they do, what marketing strategy works for them the best?

    DC did well, almost too well recently, and if I had $400K to invest I would definitely consider it. I know people who can find me a property for under $250K to purchase, and even do the entire rehab for me (they have full time dedicated crew), but I don't have sufficient funds to enter the DC market.

    0Reply
  • Account Closed
    OP
    MD · Member since 2018 · 195 posts · 53 votes
    7y

    @Russel Brazil, 8% is an awesome APR for a Hard Money loan. But I am afraid it's for seasoned investors who have done a dozen of flips and keep using the same lender while growing their portfolio. I am skeptical of getting such a low rate as a start-up with zero flips completed in the past.

    But, by all means, I am eager to get connected with @Andrew Michael and @Jared Sleeth. The best interest rate hard money loan I found so far charges 12% APR if you have no experience doing flips.

    Thank you for the referral! I will try to connect with them.

    0Reply
  • Patrick Donnelly
    Lender · Oakbrook, IL · Member since 2018 · 34 posts · 9 votes
    7y

    I talk to plenty of millennials who already have 5+ properties, pretty impressive and will be retiring a lot earlier than most. Though when it comes to percentages there can be many more that should be taking advantage of the great programs that are out there and low rates especially for rentals. I find that there are plenty of properties where the rents are covering the PITI, millennials and many others just need to pull the trigger.

    2Reply
  • Account Closed
    OP
    MD · Member since 2018 · 195 posts · 53 votes
    7y

    Patrick Donnelly, there are many great programs, from USDA 0% 30 year mortgages with under 5% APR to 20% down investment loans. Obviously you don't qualify for some if you want to buy investment property. Others (investment loans) require substantial income (ability to pay second/third etc. mortgage) to underwrite.

    I am a noob and a newbie, and someone with very limited resources. I work 9-5 job. I don't make enough to pay second mortgage. I wouldn't want to buy and hold even if someone handed me a 30 yr low APR conventional mortgage with zero down, because I can't afford to pay a second mortgage. If you rent your property you better have enough resources to cover it in case you can't get a tenant ,or get a tenant who is being very difficult to collect a rent from. My sister owned 3 properties in Montgomery County, in Bethesda and Rockville, one of them a condo other a town-home and third a single family house, bought in good times before prices skyrocketed in mid 2000's. She was forced to sell her investment properties because she consistently had trouble collecting the rent from her tenants. At least she had means to pay three mortgages simultaneously and not loose any of her properties. She sold her investments for twice of what she paid for. I don't have means to pay two+ mortgages and would loose those properties in a foreclosure if I owned them and had similar issues with renting.

    So, as a start-up I am looking for flip loans and can only qualify  Hard Money only. It's important to be realistic and know what one can get and qualify for. Now, money per se doesn't seem to be an issue to me at this time , I know what I can get (up to $170K) and I know the interest I will most likely qualify for (no less than 12% for a start up with zero experience, but more likely around 13%-14% and no more than 15% for the first project).

    What I really look advise for is the marketing. I have read about different types of marketing employed by different advisers: mass mailing, cold calls, driving around, spearing news by word of mouth and etc.

    What I wanted to know is if anything at all works for start-ups in the current hot market.  When I hear word "competition" next to "investor" I know I must run fastest I can. I never compete with anyone to buy anything, because that's a sure way to shoot yourself straight in your foot, unless you compete in terms of speed of action and ability to carry through with your offer.

    I spoke with my friend who rehabs for living (he has general contractor license, purchases homes around LA, fixes them by himself and his own crew and sells them). He strongly advised me to wait until market crashes,. He predicts that sometime soon it will sink, or correct, the same way that stock market did in October-December of last year. And suggested that I get into the business then. So, I am not in rush.  I would rather wait and get a great deal that will allow me to make a profit than rush to burn everything and get myself bankrupt. 

    But I am sure some people will disagree about the market and say you can make money no matter what, even as a start up in this current economy. If anyone has empirical observation of a successful start-up in a current market (in MD/VA/DC/DE area, with low entry level of under $170K for entire project costs), then I am open to hear what marketing strategy worked for them.

    0Reply
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