$150K cash to invest on fix-and-flips

[Nilton Santos]

Hi all,

I'm a new real state investor from out-of-state who is considering investing in fix-and-flips in the Phoenix area. The main reason for Phoenix is that, based on my research, the area seems great (read average ROIs > 30%) for flips right now, despite the fierce competition. 

I've got flexibility from my "day job" to work from anywhere (I'm a remote worker) so I'm willing to be on the ground to make this a successful business. Additionally, being out of state, I'm planning on networking as much as possible with locals (via BP, local meetups, real state investment clubs, etc.) to get a "good pulse/feel" for the local market before my first deal.

My question are:

1) how realistic is it to find great deals (net ROIs > 30%) with $150K total to invest? I figured with this kind of cash I'd have to target the low end of the market (under $100K) which, in general, is where there is fierce competition;

2) how realistic is it to make this a success given that I'm out-of-state? I figure a considerable learning curve is need to learn the local market and establish trusted relationships.

What are your thoughts?

Thank you all in advance for your answers!

[Dustin P.]

Hi @Nilton Santos

I think like @Bob Okenwa said you have more than enough money to utilize a hard money lender to flip something in the 150-200k purchase price range.

Let's say you find a letter that will lend 85-90% of purchase price plus escrow a portion of the rehab amount. You may find a property with an ARV 225k, 35k rehab, and your purchase price is 150k. In this case your lender will lend 135k (90% of purchase price) and maybe escrow 20k into a draw account for repairs.

You would be out of pocket $15k for the 10% purchase price not covered by the lender, plus the $20k that goes into the escrow account, plus maybe $3k for closing costs and 1 point on the loan ($1350) for a total of just under $40k.

That leaves you over 110k in reserves, 15k of that for the remainder of your rehab. You could do two flips simultaneously with that 150k and net a lot more than putting all that cash into one flip. You're also spreading out your risk. Yes you will net a little bit less on each flip because you're paying a point for loan origination and you're paying probably 12% interest or so which will be about 1% a month ($1350 a month in this example) but overall you'll be able to make a lot more if your goal is to do multiple flips.

Another thing to consider is that even if you plan on doing just one flip to start and you get to the point where it's about to go to market or is on the market, and another sweet deal comes along, you have the funds to wrap it up without having to wait for that first property to close.

PM me if you have any other questions and good luck!