Live in flip profit?

Question

Hello all, this is my first post here but I have been listening to BP podcasts now for several months. My wife and I will be empty nesters in a couple months and as our first big RE investment want to buy and do a live-in flip in Colorado Springs (where we live now). We will probably rent our current house and would stay in the live in flip house for 2 years (to avoid capital gains taxes) and then sell it. As we start to look at potential properties, my question is what is a reasonable net profit to shoot for to make this worthwhile? I just passed my brokers exam so I won't be paying commissions on the eventual sale, but what's a realistic net profit goal for a 2 year live in flip? I'm thinking it needs to be AT LEAST $50K to make it worth our time and effort, but appreciate any/all feedback especially from those who have done live in flips. Thanks!

Greg Parker · Answer

It is worth it in the end, if you don't mind living in a construction zone. My wife and I raised 3 kids in our renovations/new builds. It's like camping out...sleeping on blow-up mattresses...only 1 bathroom while the other one is out of service.....a lot of pizza for supper. But, after about 10 years, we had a 300K house paid for with tax free money. All of the friends/relatives that called us crazy are still living in the same old house with the same old mortgage.

Jack Gibbons · Answer

I've done this a few times, with the Co Springs market appreciation, I would think around 70k net profit is doable, but only if you can get the right price from your contractors. Have you done this before? Just be sure not to over do it. some parts of town it can easily be 100k.Pull your own comps for the level of finish you are going for (sold in the last 6-12 months). with the current inventory crisis, you may be able to sell it for a similar profit margin in it's current state.

Greg Parker · Answer

I have done several live-in flips. Profit has been around 40K. But, that may be on a cheaper house than you will be buying in Colorado. These were houses that sale for 150-180K.But, I do ALL of the work(electrical, plumbing, HVAC, roofing, drywall, build cabinets, etc.). Keep up with your time spent working on the house. My current flip, I have over 400 hours in it, at 40K that makes me $100/hour.

Greg Parker · Answer

@Jack Gibbons, you are right. Very rare to get a deal on MLS. But, it still happens if you check hot sheets every morning and are prepared to take them a check at noon. In your offer, add the wording "offer valid for 24 hours, cash, close in 1 week, and put an exact number $134,246, not 135,000. It makes it look like you have done the numbers down to the penny and this is exactly what you are willing to pay with cash in hand.

Jack Gibbons · Answer

@Mark Ashton I will keep an eye on the MLS but almost every flippable house listed is going to go for 20% over asking, must be cash and little to no conditions. anything that is livable yet dated is going to get close to today's market value minus cost of updates. Flipping on MLS listed houses has died for us..Any where days on market is very low. That's where I look.

Mark Ashton · Answer

Thanks all for the feedback. @GregParker - like you, I’m willing to put up with all that to do what you did, own my house free and clear.

Mark Ashton · Answer

@JackGibbons - where do you generally find your Colorado Sorings flip deals - via MLS, or other sources? We’re not picky about what part of town, and are willing to wait for the right deal. Appreciate feedback on the best sources of deals and maybe areas of town you’d recommend. Thanks-

Christopher Phillips · Answer

@Mark AshtonIt's not easy to make profit with a live in flip. On paper, but not when you add up all the costs.Flips make profits when: investors buy a property at a substantial discount, properly manage the rehab budget, and complete the flip in the most efficient amount of time possible so it can be sold right away to avoid carrying costs. Time is money in investing.If you buy a property in at least move-in condition, it won't be a deep discount. When you put money into the rehab, buyers won't pay 100% for the upgrades because they will be lived-in for 2 years. Buyers want brand new upgrades with the tags still on the appliances.Your carrying costs will eat up any potential profits if you live there for 2 years paying a mortgage and property taxes and utilities. You certainly don't want to carry a hard money loan for two years.

Bill S. · Answer

@Mark Ashton welcome. So you have to decide what profit you are willing to work for? I would say this, based on my experience, it will cost 2x what you expect and take 2x longer to accomplish than what you anticipate unless you are very experienced in remodeling. Shooting for $50k profit on a $350K ARV property will likely leave you with little to no profit aside from appreciation. A less brain damage plan would be to buy an already fixed up house and live in it for two years and then resell for profit with that approach. Saves the stress of marriage when living in a flip. If you really like spending your time fixing property, create a 2nd job as a handyman and pocket the proceeds and you will likely be ahead $ in the end. Large profits come by getting, great deals on the purchase, having great systems in place during the remodel while relying on the excellent skills and knowledge of others.

Mark Ashton · Answer

Thanks, we plan to do almost all the work ourselves. After Repair Value will probably be in the $300-350K range for reference.