Demo-only flipping

Rehabbing & House Flipping
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Demo-only flipping

Angus Pratt
Real Estate Investor · Anchorage, AK · Member since 2014 · 2 posts · 0 votes

Yesterday, my real estate attorney told me that a lot of his other investor clients are buying distressed properties, but only doing the demolition before selling to other investors. In our market, they might spend $15k taking it down to the studs and treating with Killz, then marking it up an additional $60k before selling the shell of a house. Much better profit than wholesaling, but not near as much time, work, and expense as a full rehab.

Do any of you have experience with such a deal? I live in Anchorage, Alaska. The median home price is around $275-280k, but materials and labor for rehabs are much higher than "normal" (a good price on a shower install is $4,500-5,000 and it can cost up to $1,000 for a simple window install).

I kind of feel like if I'm going to raise the money to buy the property in the first place and go to the trouble of taking title, I might as well just do the whole project. On the other hand, the time savings may make it worthwhile. Any thought?

Angus Pratt, Reliant Real Estate Solutions

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  • Walt Payne
    Real Estate Investor · Sebastian, FL · Member since 2014 · 812 posts · 432 votes
    12y

    @Angus Pratt Welcome to BP! It is a great resource.

    I can see where it could be a good way to do a value add without the hassle. Finding good contractors to do a rehab, and managing the process, can be a real hassle if you are not having a crew of your own. For demo work you could hire unskilled workers, and only need a minimally qualified supervisor to make sure they keep moving.

    If you do decide to the full job, or want to investigate the possibility further, get The book on Flipping Houses by J. Scott. 

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  • Scott SewellPro Member
    Investor · Anchorage AK and Hampton, VA · Member since 2012 · 140 posts · 82 votes
    12y

    Hi Angus, and welcome to BP, and AK. 

    Actually, the median home price in anchorage is closer to 350K. I'm curious about this strategy. I don't see how this works unless these folks are getting a "median home" for say, 175K? Because as you mentioned, the cost of construction here being what it is, a bare shell could easily take 100K to complete.

    Do these investors just have good marketing that generates those kind of deals? They certainly aren't getting them off the MLS. In my experience over the last couple of years, even a disaster of a house or something needing total rehab is going for maybe 20% below market value.

    Any further info on this?

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  • Roy Schauer
    Problem Solver / Investor · Anchorage, AK · Member since 2012 · 118 posts · 34 votes
    12y

    you back in town yet Scott? Maybe Angus, Scott and I need to get together and look at the different angles for this idea.

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  • Roy Schauer
    Problem Solver / Investor · Anchorage, AK · Member since 2012 · 118 posts · 34 votes
    12y

    I have heard something to what Angus is describing. It's called pre-habbing. The wholesaler finds a deal, cleans up the property and gets it ready for the rehabber's to come in and start work.  Kevin Cross does something like this with houses that have mold issues.

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  • Mary B.
    Real Estate Investor · Lansdowne, PA · Member since 2013 · 1k+ posts · 656 votes
    12y

    Yes its called pre-habbing and its still being sold at a wholesaled price and you're taking title even if its just 90 to 120days. Yet due to the prepped for rehab condition its easier to wholesale it for a minimum $25K profit. Without that prepped for rehab state, leaving all of the garbage, junk and debris and selling as-is (just the way it was found)the minimum profit can be much lower. Just make sure to watch the numbers(CMV, ARV etc) and make sure the contractor/handyman doesn't go pass framing work (new windows & doors are often included) because you're still selling it at a wholesale not retail purchase price. I've seen people go crazy on the asking with just clean-out & framing work done and it sits for a year(s) due to overprice on the flipside. They're stuck with a vacant property paying taxes and fines (newly purchased ugly houses keep the attention of the local officials real easy) with no ROI... Great way to do a minor flix and flip for more than the double close profit yet not as much as the full fix and flip yield.

    Kudos,

    Mary 

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