Advice on a fix and flip property

[Keith Chew]

So, still fairly new to investing in real estate, I have been looking for buy and hold properties in my area. I just happen to stumble on what I think is a good candidate for a fix and flip. The house is being sold for 125k as a 2/1 with "extensive rehab" needed. My agent had told me that we could sell the house after the rehab for at least 215k if we added another bedroom. My agent also told me that the house might qualify for a 203 renovation loan and that the loan comes with a licensed contractor to come look at the property. As this is my first potential purchase, I am scared of paying too much for the rehab.

Any advice or suggestions?

[Christina Carey]

Hi Keith - I always advise someone who is still green to steer clear of "extensive" rehabs, unless you have some experience in construction/renovation as a trade, or access to someone you trust with that experience. Otherwise you may find that "you don't know what you don't know" can cost you dearly. The bigger the rehab, the more 'gotchas'.

Also, I don't know your market, but if your market is moving but this house hasn't, there is a reason. Get the complete listing history - look for multiple price reductions, as well as multiple instances of it going under contract for a few days or so, and then coming back on the market (likely a buyer whose inspections revealed bigger issues than the buyer was willing/able to deal with). The two most common repair items I see that cause a property to sit are foundation issues, and extensive termite damage, both of which can be easy for someone less experienced to catch.

The 203k is an entirely separate topic. Those are for owner-occupants only, which is great if your plan is to house hack. The rates on a 203k loan are higher than other owner-occupied loans due to the higher risk the lender is undertaking, so if your plan is to hold long term, it's best to get out of that loan and into something else sooner rather than later. It's not usually a contractor who comes to look, but an inspector. That's for the full 203k (>$35K in renovation, and/or something requiring structural repairs or additions). The inspector is there to make sure you (and the lender) aren't getting in over your head in terms of planned renovations and cost vs. budget.

The agent can say whatever they want, but it's not their money at risk. If you pursue this deal, pay a GOOD home inspector a few hundred bucks to check it out.