Motivated Flipper in Boulder County

[Michael Young]

Hello BP Community. My name is Michael Young and I have become the most motivated human being in the last three weeks. What happened three weeks ago? I discovered real estate investing! It has kept me up at nights and taken over my free time (and even my not-so free time). I live in Longmont, Colorado with my wife and my almost 2 year old daughter where I work at a private golf club. I work around wealthy people every day and I have suddenly found my way to become a member versus an employee. 

I've never taken so much action either. In my first week, I contacted a real estate agent friend of mine and we got on to an MLS auto search. My inbox has been flooded and we are working to narrow down my parameters. We did, however, strike gold on a typical SFR in this area. It is in a desirable neighborhood with wealthy streets to the south. Here is why I was inspired to post today:

House was listed on Thursday. Open House on Saturday. Offers in by Monday.

We have a crisis of low inventory in the city, so when deals are posted, they don't last long. I attended the Open House yesterday and was there within 5 minutes of the doors opening. The listing agent asked us to sign in and I was already the 15th name on the list. By the time I left, there were 40 names on the list and it had only been 35 minutes. 

I have been really working on figuring out the ARV formula for jobs so that I understand what's going on. I have been trying to analyze 3 deals a day, so by the time my capital is raised, I know what I'm looking at. So, if you all wouldn't mind, I'm going to run my numbers by you and lay out my problem.

• 2 Story Brick Ranch Home: Built in 1971, Single owner, no updates. 2100 finished sq. ft and 3360 total sq. ft. .34 acre lot (one of the largest in the neighborhood)
• Needs new flooring throughout, kitchen, open living spaces, and wallpaper demolition. Also new electrical and plumbing fixtures. Structure is good so nothing there. Estimated repairs: $60,000
• MLS List price: $319,900

So here are my comps from my agent, all within 10 years in age, all within 6 months sold, all within 20% above grade square footage.

• 4/2 sold for $305,000, adjusted to $348,000, similar condition to subject
• 3/2 sold for $307,000, adjusted to $384,000, similar condition to subject
• 3/3 sold for $329,000, adjusted to $333,900, similar to final product desired
• 3/3 sold for $380,000, adjusted to $410,000, similar condition to subject
• 2/2 sold for $380,000, adjusted to $412,00, closer to final product

Then I have two mansions that are within 1/3 of a mile, but on a golf course. They are newer by 20 years, a little bigger and not ranch style for $550,000+. Adjusting to my property, I came up with a value around $475,000. In my head, I know that they are not comps, but I want to be able to finish this house out like these and push the neighborhood in that direction. In 2 years, this neighborhood will have appreciated well over $400,000 in their current condition. Looking at my comps above, it looks like my average should be somewhere in the $395,000 range. I want to believe that I could set my ARV closer to $435,000 and still be able to sell it with hardwood floors, open floor plan and a nice modern kitchen. You can see by the amount of interest in the property, it is a steal and someone will walk away with a great project. I just don't know how to compete with 20+ bids that will bring the price up to probably $335,000 and then have to put $60,000 into it. I don't think I'm over estimating the repairs, but I might be. We are still looking at $395,000, all in, even with a cash bid. In a perfect world, we'd need to sell for $460,000 to cover all resale costs and make a nice profit. My agent says that shouldn't be a problem if it is well updated.

SO, there it is. My question is, how do I compete in this type of market, where it needs work, but a non-investor could create a bidding war that would price me out? Can I offer cash below list and leave it on the table if other deals fall through? Should I even bother with a below list offer? I trust my agent, but we are not on the same page as far as the numbers bear out. She is also looking at pending offers in the neighborhood that are in the low $420s, in similar condition to the final product (all with smaller lots). Should I include a few pending offers in my analysis? Should I trust my intuition that the values are rising enough to sustain my ideal ARV? Is $20,000 a reasonable profit goal for the amount invested in these projects (5% return), or should I be aiming higher (but not so high that I price myself out)?