Finding House Flipping Deal

[Hunter Gibson]

Hey everybody I am new to real estate investing. However, I have a partner to house flip with. I just need to find the deals. I was wondering the best way to go out and find deals are. I live in Salt Lake City, but I am willing to do anything.

Also, once you find the deal how do you go about analyzing the deal.

Thanks for the answers and help!!

[Mindy Jensen]

I will answer your actual question first, then give cautionary advice because that's the kind of person I am.

To find a deal, you need to know your market and rehab costs. Looking at a house that needs work doesn't do anything unless you have a really good idea of what it will cost you to make the rehab necessary to get it into resale condition. And your rehab numbers need to be TIGHT. Let's play pretend.

You find a house listed at $100,000. Other homes nearby are selling for $175,000 so you instantly think this is an awesome deal. Maybe, maybe not. If it just needs a coat of paint, then it's a smoking hot deal. (Spoiler: it doesn't just need a coat of paint.) 

Let's say you estimate $40,000 for the rehab. Now you're all in at $140k and when you sell at $175k, you're making $35k in profit.

Not so fast.

Your $40k estimate quickly becomes $50k because there is ALWAYS more to the rehab than you think. No problem, you're still making $25k, right?

Well, how did you fund the purchase? You will have holding costs. It will take longer than you anticipate, and when you sell, you have selling costs. Real Estate Commissions alone are going to run $8500-$10,000. 

And that is IF you are able to buy at $100k and sell for $175k. Maybe you have to pay $110 and you can't sell it at $175, you can only sell at $170.

There go all your profits.

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Now that word of caution. The market is changing. The Fed is raising interest rates, the jobs report just came out better than expected, which points to ANOTHER increase. The Fed just met again this week and rates jumped .25% overnight. 

All of this means your potential buyers are going to have less buying power, and your flip could turn into a nightmare that you can't get rid of. Have MULTIPLE exit strategies, in case the market changes dramatically while you are working on your home. It never hurts to be overprepared.