New Hampshire flipping

[Barry Allen]

Has anyone here ever flipped in New Hampshire? If so is it worth it? Where should I be looking, Manchester area? How fast do they sell compared to largely populated cities such as Atlanta. I want to wager flipping locally but don't know how fast the rehab will take and how much it will sit on the market.

[Troy Zsofka]

@Barry Allen - 

I agree that on-market deals are more difficult to come by than they once were.

However, they're still out there in New Hampshire if you're willing to take on a property than needs significant work, and you're willing to take the risk of stepping outside the highly competitive "hot markets". Is it wise to invest in this type of more rural, uncertain area? It depends... Professional and dependable contractors are more difficult to come by so it requires more direct involvement and poses a greater risk, and you can't be sure about time on market for resale (to @Ann Bellamy's point) so it requires holding long-term as a viable potential exit strategy (one should never rely solely on resale). Also, if you don't know the area decently well, you may buy in the wrong part of town and come to realize that your improvements didn't boost the value past an area ceiling of which you were unaware because your pre-purchase comps were in a more desirable neighborhood. On the other hand, if you can avoid these potential pitfalls, there are opportunities out there.

I recently purchased an intended buy and hold (90% of what we do) and ended up flipping it (this particular house was about an hour north of Concord in the Claremont / Springfield VT area):

Purchased for $55K needing a good amount of capital injection:

We did new windows, roof, deck and vinyl rails, cedar clapboard repair and paint, some sill repair, entire new propane-fired forced hot water heating and domestic hot water system (it had electric heat and an old electric water heater), plumbing repairs, full bathroom redo (new tub/shower with custom tile enclosure, new vanity, new toilet), half bath redo (vanity and toilet), new floors throughout (tile and laminate and refinishing of hardwood in living room), all new interior doors and finish carpentry, complete interior paint job, new sinks/faucets/finish plumbing, new appliances, a good amount of electrical upgrades, all new interior and exterior lighting fixtures, driveway redo with blue stone, a drainage-related landscaping improvement, filling in of a swimming pool, and other miscellaneous odds and ends.

I estimated to be all-in (purchase, reno, and carrying costs) just under $100K. Ended up several thousand over that, mostly due to the electrical work being more significant than I had seen when I walked through it, the heating system coming in over-estimate, the cost to keep it modestly heated over the winter after we bought it (thanks to the electric heat), and some performance-related labor issues.

When I purchased it (November 2015), I figured it would be worth around $140K finished, and rent for $1,400 or so. Upon completion, I walked through with an agent and he estimated a fairly quick sale at $169,900. Sure I always estimate ARV conservatively to play it safe, but that was quite a welcome surprise. Return on Equity as a rental at that point becomes deeply unattractive, and off-loading it a no-brainer.

Listed it on a Friday in late August 2016. Had a full-price offer (minus seller concessions) on Monday, had an offer for $180K on Tuesday. Closed at $176K on November 1st). So, 3 business days to contract, and just over 2 months from list to close (2 weeks of which were me pushing it back to reach long-term capital gains status).

This property was found on MLS, not off-market, and I realized a ROI of over 50% (after all costs, including holding costs and costs of sale).

A few things worked in my favor:

-There wasn't a whole lot of good competition on the market in the area. Most were priced too high, and not in immaculate condition. Every issue we identified was addressed and corrected, so the house was in substantially better condition than its competition, and it showed.

-That list of renovations would get pretty expensive if hiring contractors to do the work. We do it in-house (except plumbing and electrical) so were able to get all that done for under $45K (and it should have been less but for some labor inefficiencies). It's important to be able to address everything you find and not cover things up like we all know some flippers do. Those practices will inevitably come around to bite you, in this life or the next...

-With that much reno to do, holding costs can be expensive; especially finance costs. We had a lot of other stuff going on when we bought it so we owned it for several months before doing the reno, but our holding costs consisted of real estate taxes, liability insurance, and electric bills; no financing costs. Furthermore, when it went under contract so quickly, I pushed the closing date out to reach 1 year and 1 day; thereby saving several thousand dollars in capital gains tax (recouping over double the holding costs). I didn't include that in my numbers, but it's a nice bonus on the back end when you don't have the tax consequences of a typical flip.

-This project was middle of the pack for us in regards to what it needed for reno. If you're looking for something you can be in and out of quickly with a contractor, it's tough to find a deal, and there's a lot of competition if you do (this goes to the point made by @Richard Dale-Mesaros). If you can tackle something that has significant renovation needs, and you have the know-how, time, financial wherewithal, and willingness to take it on and do it right, you can still find deals on the MLS in NH.

Some people say that you can flip houses in as little as 5 hours per week from the comfort of your home and none of your own money. Those people aren't real estate investors; they sell books, video tapes, and internet clicks for a living...

Happy investing,

Troy