What would you do? Flippers chime in please!!!

Question

I purchased a property with a partner two months ago. We estimated that we could turn it in 3 months (still on target), but it had some unknowns that we were aware of (behind the walls). We had a contingency but it wasn't enough. So, we took a hit to our budget. However, we would have come out ok save for a recent comp that is going to kill us. It came in $11k less than our target price. It was an FHA appraisal and while there are other higher prices to support our increased price, this new appraisal is in the same subdivision. Also, the townhouses are almost identical in terms of size, etc. Furthermore, the buyer will most likely be FHA because it is a low income area unless an investor buys it for a hold.

My partner (new to flipping) wants to finish the house as planned. New light fixtures, storm doors, faucets, etc. He thinks that an FHA person is going to come along, love it, and pay the difference. I don't even think FHA will loan in that situation. I say that we should just finish it and get out. Take our losses (we will make a very small profit). In other words, dispense with the storm doors, leave the existing faucets, leave the light fixtures. In other words, save as much as we can on materials. Make it clean, functional, make sure everything works, etc.

The recent comp was not a flip and had similar features. We are also in a very low price point.

Two questions:

1. Your thoughts on finishes

2. I thought of some other options, can you guys think of others?

a. Rent it out

b. Don't accept an FHA buyer (longer time on market)?

c. Lease purchase

d. Sell and get out

Any help would be appreciated.

Dana Whicker · Answer

On a lower-end home I would leave everything that is clean, functional, and doesn't look like it's from the 70s. I do this anyway. Just my 2 cents.

Kalimah Jenkins · Answer

@Angelo C. and @Wayne Brooks Thank you both. I've had situations where FHA came in slightly lower but it is of no moment. My initial play was to get out NOW. Clean and functional. I just needed you guys to help me convince my business partner. He's on board now and we will move forward with a 2 week timeline.

Thanks.

Wayne Brooks · Answer

FHA appraisals don't generally come in lower, so FHA verses conventional won't matter. The previous sale that was FHA, if the owner sold for a lower price all appraiser's will come in just above that price, even if the property would have justified a higher price.

Angelo C. · Answer

Kalimah,

Here is the definition of market value taken from the typical appraisal form (1004):

"The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. Implicit in this definition is the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: (1) buyer and seller are typically motivated; (2) both parties are well informed or well advised, and each acting in what he or she considers his or her own best interest; (3) a reasonable time is allowed for exposure in the open market; (4) payment is made in terms of cash in U. S. dollars or in terms of financial arrangements comparable thereto; and (5) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions* granted by anyone associated with the sale"

The type of financing (conventional vs FHA) makes no difference in determining market value.

Best wishes.

Kalimah Jenkins · Answer

@Angelo C. In my experience, it seems as though FHA appraisals come in lower. Given that there are comps that support a higher price, I thought if we didn't go with an FHA buyer, we may have a better chance of it appraising higher.

In truth though, I just want to finish and get out. I want to assume that the FHA appraisal is what we can get and move on.

@Matthew Paul I agree. I just want to make a little and move on.

I normally improve a little better than the area because I have a 1/2 price materials source. That way, the DOM is very low.

@Dana Whicker Thanks. Totally agree.

Matthew Paul · Answer

Clean , neat and move in ready . I do whats necessary to make the house presentable . Keep the price lower to attract more buyers . Lots of base hits , are better than 1 home run

What would you do? Flippers chime in please!!!

What would you do? Flippers chime in please!!!

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