Newbie just closed on 2 flip's...now, how do I not lose them?

Question

First and foremost, thank you for taking the interest & time in opening up this post to read!

I'm a NAVY Veteran who last September took all my equity out if my inflated Southern California home and chose to begin my REI journey in San Antonio, Texas. I closed on my 1st property in November and my 2nd this past Valentine's day.

The 1st; was a 70% hml with my own capital including the 30% and full 75k rehab(took 4 dumpsters, previous original homeowner from '85 was about to default on his second mortgage...they left everything behind and everything on the property was completely neglected...I even poured a new driveway). This house is a 2,503' sq. ft. beautiful corner lot on a .25 acre w/an inground swimming pool purchased for 163k and prior to the sh*t hitting the fan, AKA corvid 19...I was going to list it for 310-320k. I'm about 99.5% completed...what are my options? Should I go ahead and list it or are there any alternative's that could be beneficial? Carrying costs is about $1,400/mth

The 2nd; is a 277k outdated gem already appraised at 440k thats going to take about another 75k in rehab. So far only demo has been done which includes the installation of 3 lvl beams to completely open up the 1st floor layout. Now that we're about to move all my efforts over to this property since the 1st is complete...my wife and I are nervous to begin to drop that 75k into it, because of the unknown corvid 19/economic forecast. The problem is, this properties holding costs is about 3,300k/mth. Because I'm new to REI...I'm respectfully wondering if there are any intelligent/savvy alternative's that could be beneficial to my situation?

In advance, I truly appreciate to any and all who respond to my post!! I also hope everyone stay safe and healthy throughout these unknown times ahead of us. God bless America and everyone else worldwide.

Matthew Allen · Answer

Account Closed. We all need to connect when this is over!

For the most part, I agree with Stone, my only difference is that I would complete the current project...with great haste. At least right now we are in a Buyer's market since usual supply is currently listed, but many buyers are waiting (by force or choice) to look for new places. This tells me as a Seller I need to leave ZERO room for buyers to move on to the next house option. Finish up any unfinished projects then list...again with great haste. If it's truly 95% done, then you're talking less than $4k which can make the difference in TIME on the market. Be willing to be aggressive on pricing too. If you can be under the competing houses with your fresh rehab, you'll be in a good spot. With the completed house and relatively low holding cost, plus your ability to refi out of HM, you are in a good spot with this one in my opinion given the circumstances.

On the 2nd one, generally I am an optimist, but I would strongly consider any opportunity to break even or even take a loss right now if one exists. Could the market turn? Sure, but I'd rather be safe than sorry. My optimism has cost me a lot of money on a house or two I thought I could make work...and that was with factors in my control.

Either way, best of luck to you!

Joseph Cacciapaglia · Answer

The 1st one sounds like you could rent it and at least cover your holding costs. It will depend on what part of town you're in, because anything over $1,500 here is a pretty high end rental. We're still having decent leasing activity, at the moment. Another benefit of this, is if you hold it for over 1 year, I believe it will change your profit to long term capital gains, instead of ordinary income, which is what I believe you are taxed on for a regular flip. Check with your tax adviser though, because I am not one.

You probably don't have any real options for the 2nd one. You can't lease it until it's done, and you won't cover those carrying costs with a rental anyway. You can either try to sell it as is, which probably results in a loss, unless you bought it very well, or you can bite the bullet and do the project. You may be able to limit your risk by taking on a partner for the renovation, but that could be a tough sell today.

Rick Pozos · Answer

I would probably wait to buy another property right now, but finish what you got. Stay on the lookout, but realize that the price you pay now should be a little less than before.

You will never know what will happen with the market if you dont test it. List it!!

After several days you will know what is going on. You can adjust where you need to. You might have to lower the price if there are no showings, or if you have plenty, you are right on the mark.

As far as the 2nd rehab. I would do it. I have two going on myself right now. I am not worried. I will finish them and put them on the market. Again, my next one will be with more caution, though. My ARV is going to get discounted a bit from what has sold in the last few months.

Stone Saathoff · Answer

Thank you for your service.

My personal opinion on this is go ahead and list the first one, and get the rehab done on the second.

I was on the phone with a couple agents earlier today and they're still getting offers in on their houses. Another option for your first one is to rent it out because it's going to be easier to get a tenant in there. The downside is that you can't resell for a decent amount of time (which may be a plus since you can wait for this all to blow over and minimize carrying cost), and you risk them putting wear on your brand new finish. But it is an option.

For 75K in repairs that sounds like a full rehab, which will likely take 2 months+ anyway, might as well get it done. The cost of construction isn't going down, you may even be able to negotiate lower prices right now with your contractor if they need work. If you play your cards right, you finish right when Covid restrictions ease and you're one of the few new rehabs on the market, less competition.

That's my 2 cents. Hope it helps.

Newbie just closed on 2 flip's...now, how do I not lose them?

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