New from TN

[Tony Reale]

Hello all, I am a new member from Nashville TN. Many years ago I went into a couple of flips on the side and they went ok but not the money making potential that Carlton Sheets promised for my 600 dollars lol. I have a decent situation going right now and would love some advice.

I have been a contractor for many years now and recently reconnected with an old high school friend of mine who is doing very well and by chance helped him out a ton on some work at his house and saved him thousands of dollars. He has asked me back many times and we are now talking about partnering on some real estate deals.

Our basic goal is passive income but he is willing to invest in me and start with a few flips to basically learn the business front and back, buying, selling, holding, etc. I can indulge with more details and would be happy to although don't want to spam the new member forums unless asked for details.

My initial question is in our unique circumstance I think we can really profit from lesser returns than the 70% rule most flippers use. I live in an apartment and worst case and most likely case will move into the flip to save on cost. It will also let me finish it quicker. I have no kids by the way so moving every few months for a short time is no problem for me.

Can we fudge the numbers in our scenario? Am I not thinking big enough? Should we look for a wholesaler? I saw a wholesaler ad on craigslist that wanted my email before I can see any info. Red flag for me. I don't give my info to any site, real estate or not without wanting to. Is that the norm in the wholesaling business?

We have long term goals but short term, for our first acquisition, is beating the streets good enough? We can do 80% and I can mitigate the rehab and holding costs by a lot. We have done our homework in target markets for a month. We can do 80% all day long. Should we in our place, or do more homework, and possibly pay marketing, to get the 70% buy price?

Looking forward to any advice thanks all!

[Wendell De Guzman]

I agree with @Mehran K. and others: DO NOT DISOBEY THE 70% RULE! I have flipped houses and even following the 70% rule I almost lost money on a few deals. Here's the basis of the 70% rule:

1. When you sell a property, you will likely give 3-5% discount on the price (seller concession)

2. You then will pay a realtor about 6%-7% of the sales price

3. There's also 1-2% closing costs

4. If you hold the property for 3-6 months, that's roughly 3-6% (or 1% holding cost - that comprises of house payment + utility payments + taxes and insurance)

If you add up all the numbers, you have...13-20% COSTS or you will end up 80-87% of the sales price. Worst case scenario and you followed the 70% rule, you will end up making 10% profit (80% - 70%).

If you buy the property (with repairs) at 80%, you could end up NOT MAKING ANY MONEY on the deal.