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J Scott - Author of Flipping/Estimating Book - Ask Me Anything!
Hey everyone!
First, thank you so much for all the support after my recent Podcast episode and the recent BiggerPockets release of the 2nd Editions of The Book on Flipping Houses and The Book on Estimating Rehab Costs. I've gotten a tremendous amount of email and private messages with the kindest of words, and I sincerely appreciate it.
Unfortunately, there's been so many emails and messages that I haven't had the ability to respond to everyone, despite my best attempts. Many of them contained questions -- and I hate not being able to respond to all the questions I get! So, I wanted to start a thread to give everyone an opportunity to ask questions -- and since I get many of the same questions over and over, I thought this might be a good resource for future questions I may get.
Anyway, if you have any questions about the Flipping/Estimating books, about any aspects of real estate strategies, about investing in general, about running a real estate business (or any business), etc., I'm happy to do my best to answer.
There are a lot of tremendously knowledgeable people on this forum, so don't post here if you have a question best answered by the whole community.
But, if you want to address something specifically towards me, this is the place! Feel free to post in this thread and I'll do my best to respond to everyone!
Also note that I created this thread a few years back -- might be worth checking first to see if I've answered it there:
First, we have learned so much from your two books and we cannot thank you enough for them! Also, thank you for being willing to take all these questions and help us gain knowledge in the REI field. I am fairly new to the fix and flip world and would like to run a few numbers with you for a second opinion. We have found a large 4/2.5/2975 sq. ft. home with a private dock onto a lake in Florida. Asked $299,000 but are down to $260,000. Although the house is in good shape, we would like to upgrade throughout so that it commands a much higher selling price. No repairs require permits (roof good, 2 new a/c units, alarm system already in, new vinyl hurricane proof windows in), and to totally upgrade we estimate approximately $56,000 all in for rehab. We have a contractor on the ground who has walked through and gave up his numbers. Non-owner occupied loan rates verses cash buy, holding costs during the 6-8 week rehab process, then selling time, we are no longer sure it is a good purchase. What would you be asking yourself? How much would you pay for a project like this? Your help would be invaluable to us.
@J Scott
I'm beginner in rehabbing and flipping.
I'm reading your book "The book on flipping houses" and loving it.
Thank you so much for putting everything together and in sequential way.
My next read would be your next book related to estimating rehab cost.
Originally posted by @Elizabeth A Shatzkin:
First, we have learned so much from your two books and we cannot thank you enough for them! Also, thank you for being willing to take all these questions and help us gain knowledge in the REI field. I am fairly new to the fix and flip world and would like to run a few numbers with you for a second opinion. We have found a large 4/2.5/2975 sq. ft. home with a private dock onto a lake in Florida. Asked $299,000 but are down to $260,000. Although the house is in good shape, we would like to upgrade throughout so that it commands a much higher selling price. No repairs require permits (roof good, 2 new a/c units, alarm system already in, new vinyl hurricane proof windows in), and to totally upgrade we estimate approximately $56,000 all in for rehab. We have a contractor on the ground who has walked through and gave up his numbers. Non-owner occupied loan rates verses cash buy, holding costs during the 6-8 week rehab process, then selling time, we are no longer sure it is a good purchase. What would you be asking yourself? How much would you pay for a project like this? Your help would be invaluable to us.
How much would the property resell for?
How much profit do you want to make?
What type of financing will you use?
Hi Scott,
My husband and I would like to do our first flipping in the Phoenix - Scottsdale area.
We are extremely new to this business so here is what we would like to start with :
Buying with our own money a condo/small house of about $100.000, remodeling it, and sell it after 3 month more or less, or after whatever time will take to rehab the house.
My husband is form Uruguay (South America) and his family own lands an real estate property down there and he used to manage those, meaning that he’s extremely and exquisitely handy so I’m premature sure he can do the work himself with a few people helping.
The main goal of this operation would be get some experience in this business, without big risks, even if we won’t gain a lot of money it doesn’t really matter but not loosing obviously !
From the highness of your experience, what are the very first steps that we should follow to approach this operation ?
Thank you very much for your opinion,
Carolina
Very few comps to go from. One house two doors down, 1100 sq. ft. smaller, one less bedroom, but with a pool, sold for $326,000. Another house is for sale, same footprint, and they are asking $436,000.
Three realtors have told the wholesaler that it would sell for around $415,000. No hard data to work from and I am opposed to buying on a gut feeling being so new. We would like to make at least $50,000 as it is a more expensive project, but that may be unreasonable for this flip.
We have an investor who can bring cash to the table, but we will have to finance a portion of it. I believe the investor will go to $200,000 and the rest will be from our pockets.
Originally posted by @Carolina Brembilla:
Hi Scott,
My husband and I would like to do our first flipping in the Phoenix - Scottsdale area.
We are extremely new to this business so here is what we would like to start with :
Buying with our own money a condo/small house of about $100.000, remodeling it, and sell it after 3 month more or less, or after whatever time will take to rehab the house.
My husband is form Uruguay (South America) and his family own lands an real estate property down there and he used to manage those, meaning that he’s extremely and exquisitely handy so I’m premature sure he can do the work himself with a few people helping.
The main goal of this operation would be get some experience in this business, without big risks, even if we won’t gain a lot of money it doesn’t really matter but not loosing obviously !
From the highness of your experience, what are the very first steps that we should follow to approach this operation ?
Thank you very much for your opinion,
Carolina
Hi Carolina...
Unfortunately, it would take a book to answer that question. Luckily, there is just a book out there... :-)
Seriously though, I would recommend reading The Book on Flipping Houses. It provides a step-by-step guide to flipping your first house. The book is written with 20 chapters, each corresponding to the next step in the process.
Seller dropped to $256,000 cash only bottom number. Rehabber dropped to $50,000 from $60,000. How does that change things?
Thanks again.
Elizabeth
@jscott, Have you or anyone on this thread ever used the services of a professional (company) to act as trustee in a land trusts. If so, which one(s) would you recommend? Also, what personal experiences could you share regarding this topic?
Originally posted by @Elizabeth A Shatzkin:
Seller dropped to $256,000 cash only bottom number. Rehabber dropped to $50,000 from $60,000. How does that change things?
Thanks again.
Elizabeth
The Flip Formula that I use to calculate maximum purchase price is:
Purchase Price = ARV - Rehab Costs - Fixed Costs - Desired Profit
I think you mentioned that your ARV is $415k, your rehab costs are $50K and your desired profit is $50K. And let's assume your fixed costs are 15% of the ARV, or about $60K.
Then, your maximum purchase price should be:
Purchase Price = $415K - $50K - $60K - $50K = $265K
Assuming those numbers are accurate, you should pay no more than $265K for the property.
Check out Chapter 8 of the flipping book for more details...
Originally posted by @Scott Scheel:
@jscott, Have you or anyone on this thread ever used the services of a professional (company) to act as trustee in a land trusts. If so, which one(s) would you recommend? Also, what personal experiences could you share regarding this topic?
I have not...sorry...
Hi @j scott and anyone else willing to lend advise.
First, let me apologize in advance, this is going to be a long post, but want to give as much details as needed to get good advise.
J.Scott, I've read (listened to on Audible) your book The Book on Flipping houses and read The Book on Estimating rehab costs. I am about to re-listen to the book on flipping, I have learned so much my brain hurt, lol. Thanks for putting that out, it is a great tool for us newbies. I also frequently visit your 123flip site. Thanks again for the wealth of knowledge you put out there for free!
We (husband and I) are new to investing and are contemplating our first "fix and flip". We currently own a 5/2/2200 Sqft SFR in the suburbs of Chicago (used to be our primary residence but has been rented for the last 6 years). We have to pay the mortgage balance (approximately $50K) off fairly quickly (1-2 months) the reason behind that is too long to get into here.
The house is in fairly decent condition so decided we will fix and flip it to command a higher sale price and to get the experience in doing a fix and flip. I am a part-time realtor so I can pull comps,I believe the AIV of the property is between $150-180K but ARV will be about $250K (conservative estimate likely more like $285K). I've had one GC guve me an estimate of $80K for rehab costs, waiting on another one, as I think that's a bit high. Calculated fixed costs to be about another $30K
We both have good W2 jobs but husband has a heavy dti due to our primary residence being in his name only and all of our other credit obligations. My debt is not that high but credit situation isn't good right now, therefore we need a 100% financing option.
Not many HML offer this option so we are considering going with Do Hard Money (I know there are mixed opinions about them) but we do not have any family or friends that we want to get involved in this at this stage. And I also don't want to split profit 50/50 with someone, so DHM is our best option, expensive but best option, in the end we expect be able to clear between $80-100K in profit, which we plan to leverage to obtain more rental properties, and pay down some debt. This will allow us to leverage more traditional lending options, as we have the income.
My question, should we go through with this option or take our chances and try to sell as-is and possibly end up with the same end result?
Originally posted by @Naema N.:
Hi @j scott and anyone else willing to lend advise.
First, let me apologize in advance, this is going to be a long post, but want to give as much details as needed to get good advise.
J.Scott, I've read (listened to on Audible) your book The Book on Flipping houses and read The Book on Estimating rehab costs. I am about to re-listen to the book on flipping, I have learned so much my brain hurt, lol. Thanks for putting that out, it is a great tool for us newbies. I also frequently visit your 123flip site. Thanks again for the wealth of knowledge you put out there for free!
We (husband and I) are new to investing and are contemplating our first "fix and flip". We currently own a 5/2/2200 Sqft SFR in the suburbs of Chicago (used to be our primary residence but has been rented for the last 6 years). We have to pay the mortgage balance (approximately $50K) off fairly quickly (1-2 months) the reason behind that is too long to get into here.
The house is in fairly decent condition so decided we will fix and flip it to command a higher sale price and to get the experience in doing a fix and flip. I am a part-time realtor so I can pull comps,I believe the AIV of the property is between $150-180K but ARV will be about $250K (conservative estimate likely more like $285K). I've had one GC guve me an estimate of $80K for rehab costs, waiting on another one, as I think that's a bit high. Calculated fixed costs to be about another $30K
We both have good W2 jobs but husband has a heavy dti due to our primary residence being in his name only and all of our other credit obligations. My debt is not that high but credit situation isn't good right now, therefore we need a 100% financing option.
Not many HML offer this option so we are considering going with Do Hard Money (I know there are mixed opinions about them) but we do not have any family or friends that we want to get involved in this at this stage. And I also don't want to split profit 50/50 with someone, so DHM is our best option, expensive but best option, in the end we expect be able to clear between $80-100K in profit, which we plan to leverage to obtain more rental properties, and pay down some debt. This will allow us to leverage more traditional lending options, as we have the income.
My question, should we go through with this option or take our chances and try to sell as-is and possibly end up with the same end result?
So, it sounds like if you rehab it, you'll generate $80-100K in profit. If you sell it as-is, you'll generate about $60-80K in profit? Is that correct?
While there is no absolutely right or wrong answer here, if those numbers I just posted are correct, I personally would try to sell as-is. Sure, I'd lost about 20-25% of my profit, but in return I'd get:
- A faster sale
- Less effort in rehabbing
- Less risk in rehabbing
- Less headache having to find a loan
Now, another thing you can do is to list as-is, and then if you can't command the price you were looking for, do the rehab at that point. That way, you give the quick-and-easy route a chance, and if doesn't work, you go with the higher-effort (and higher-profit) Plan B.
If you were to tell me that money wasn't an issue and you weren't in a time crunch to get out there, I might suggest a different option, but given the time and money situation, I'd recommend the quick and lower-stress route.
Terrific. Thank you for your time and expertise. I hope we can get that property in the next few days!
J scott that episode #10 from the podcasts jesus amazing i have repeated more then 20 times ; to be more specific from minute 13:00 to 17.00 is the key Thanks
@J Scott, yes those numbers sound about right. I will discuss that option with my husband. Thanks for the advise!
Originally posted by @Elizabeth A Shatzkin:
Terrific. Thank you for your time and expertise. I hope we can get that property in the next few days!
Before you finalize the deal, I would recommend:
- Verifying your ARV
- Verifying your Rehab Costs
- Calculate your Fixed Costs in more detail
And then sticking all those variables back into the Flip Formula and make sure your purchase price still works!
This is a great thread, thanks for doing it.
My partner and I are currently in the process of buying our first real estate property as an investment.
Many real estate podcasts and books that I have read state that a big regret that the real estate investor had was not investing fast enough/ taking too long to invest in their first property. That being said, your recent BP podcast + your new book has some warning signs on the economy and a potential recession around the corner. If you were a first time buyer (as an investment), would you wait until prices are cheaper or would you jump in now, when prices are potentially higher?
Obviously one cannot time the market perfectly and you also have to make sure the numbers work for you, regardless of when you buy. But what is your advice for timing your first home purchase? Wait 3-6 months? Buy now?
Thanks!
@JScott Just bought your book "Recession Proof Real Estate Investing". Looking forward to another great read!
In the end, we passed on the deal . The rehab costs were about right as were the holding costs, but we could not truly see the ARV in comps as this area is just starting to get developed somewhat a few homes were asking in that range but only one had been sold, and it was not a great comp. Our best estimate took the maximum purchase price down to $240,000 and the seller was not willing to go that low. Also, looking further at the surrounding areas, we found this area to be more mixed than what we were comfortable with, meaning there were mobile homes mixed in with the houses, etc.
This is what makes buying out of state so difficult for us, as we are not really knowledgeable about the areas we are looking at. We have data, research, trends, scavenging the pages looking at the homes, speaking to wholesalers, RE agents, etc., but not having been to the site makes it all feel so very risky. Hard to get past the risk as a first timer. We are analyst types over here and have to be careful not to have that 'analysis paralysis' or we will never get where we want to be.
If you have any suggestions for those of us who have never purchased out of town before, that would be tremendous. We have purchased locally but the market is now out of bounds and we are looking elsewhere.
Thanks again.
Originally posted by @Elizabeth A Shatzkin:
In the end, we passed on the deal . The rehab costs were about right as were the holding costs, but we could not truly see the ARV in comps as this area is just starting to get developed somewhat a few homes were asking in that range but only one had been sold, and it was not a great comp. Our best estimate took the maximum purchase price down to $240,000 and the seller was not willing to go that low. Also, looking further at the surrounding areas, we found this area to be more mixed than what we were comfortable with, meaning there were mobile homes mixed in with the houses, etc.
This is what makes buying out of state so difficult for us, as we are not really knowledgeable about the areas we are looking at. We have data, research, trends, scavenging the pages looking at the homes, speaking to wholesalers, RE agents, etc., but not having been to the site makes it all feel so very risky. Hard to get past the risk as a first timer. We are analyst types over here and have to be careful not to have that 'analysis paralysis' or we will never get where we want to be.
If you have any suggestions for those of us who have never purchased out of town before, that would be tremendous. We have purchased locally but the market is now out of bounds and we are looking elsewhere.
Thanks again.
In general, I don't recommend purchasing out of town for your first couple deals. It makes a difficult process even more so.
If you're going to invest out of town, spend a couple weeks in the area where you plan to invest and get to know it. Also, find a great real estate agent who can assist.
Does you book on estimating rehab costs have an audio book form?
Regarding investing out of state, any advice how to find reliable contractors for rehab? I've had trouble with that on my local properties.
Originally posted by @James Dean-Howell:
Does you book on estimating rehab costs have an audio book form?
Hey James,
The Book on Estimating Rehab Costs is not sold in the audio format, simply because it contains a LOT of tables, and these wouldn't read well in audio format. We tried to figure out a way to make it work, but we decided that most people wouldn't be happy with that book in audio format, and we didn't want to put out anything that wouldn't be valuable.