My first flip is not going well......thoughts?

[Mike Wallace]

Bought a 2bed/1bath for 18k cash. This is my first flip and am learning a lot as I go.

I thought rehab would cost me 10-15k. I am now hoping to stay just under 25-26k. 

Had to gut the entire thing for numerous issues, lets just say I am learning a lot and will know how to evaluate the next potential flip 100000% better.

The area is a C neighborhood. No violent crime, but a decent working class area. The problem is all the comps on the area for this type of house are in the 35-45k range. But every single one of them is very outdated. Mine will be all updated with nice finishes.

Think I will be ok? I want to be able to get $60k..

Worst case scenario I can rent for about $900-950.

I own 7 rentals in this very neighborhood so I do have some experience in that field.

[Derek W.]

You're doing fine. I've rehabbed over 100 houses and still blow my budget now and then. This experience will make you better and stronger. Don't let it keep you awake at night.  Worst case scenario, you need to refi your money out and keep as a rental. You'll be glad 10 years from now!

[Christine P.]

It's matter of perspective. You could have easily spent that amount of money on listening to "gurus" for days on end - and not have much to show for it other than books and DVD's. It's all a learning process. 

Would love to see photos of your project. What was the one (or two) snafus that cause your estimates to be too low?

[Mike Wallace]

Originally posted by @Christine P.:

It's matter of perspective. You could have easily spent that amount of money on listening to "gurus" for days on end - and not have much to show for it other than books and DVD's. It's all a learning process. 

Would love to see photos of your project. What was the one (or two) snafus that cause your estimates to be too low?

needed a new roof.

also the electrical was all wrong and needed to be entirely redone.

[Chris K.]

I'd be super excited if I bought a property that cost 45ish and could rent for $900+. 

[Mike Wallace]

Originally posted by @Chris K.:

I'd be super excited if I bought a property that cost 45ish and could rent for $900+. 

 My market is odd. Buy and rents work great. Buy and flips are tough.

I paid 99k last year for a property that rents for $225 and was 100% turn key.

[Mike Wallace]

2250 monthly.

[Darnell Kramer]

@Mike Wallace

Wow.  great area.  

@Christine P.  

@Chris K. 

 Complete agree.

[Jarod Bona]

I don't think you are in bad shape. It is easy for costs to spiral out of control during a flip. Be vigilant about spending; other people will eagerly spend your money quickly. So stay on top of material and labor costs, even if you have to micromanage a bit more than you'd like.

If you put it on the market with a roof that didn't need replacing immediately, but was old, you may not have received the purchase price you will receive with a new roof. So you ought to receive at least some of your costs back.

And worst case, it appears that you have a decent back-up plan to rent it out. 

[Brian Larson]

I agree with others here. You are probably feeling worse than you actually are.

Question: you purchased with cash and are renovating. Did you borrow the money?

The reason I ask is this. If its just your cash then your holding costs are minimal. Outside of opportunity cost you are in very little. Even if you have to sell just above what you put into it you are ok financially. As @Christine P. said, you simply paid for great experience.

With that said, sure you want your money back ASAP and an overrun is brutal but I think it looks much worse from your view since you are in it than it actually is. Numbers you provided do not indicate major problems.

Good luck man and please keep us posted on how this turns out. Flipping this to a rental may not be a bad idea. Heck, I may want to buy it :)

Brian

[Casey Cuppy]

The experience you gain from this will be what is really valuable for you. Plus having the backup plan of renting it for that is a great plan B

[Richard C.]

Don't worry, don't be depressed.

Do be ready with that backup exit plan.

I think you may need to rent.  If the comps are really $45k, how will your buyer get an appraisal to support $60k?

[Robert Adams]

As long as the expenses are low $60k with rental income of $900+ should give you a good CAP rate. Are you interested in holding it? What are the average CAP rates you are seeing in the area?

[Account Closed]

Originally posted by @Mike Wallace:

Originally posted by @Chris K.:

I'd be super excited if I bought a property that cost 45ish and could rent for $900+. 

 My market is odd. Buy and rents work great. Buy and flips are tough.

I paid 99k last year for a property that rents for $225 and was 100% turn key.

Rehab resales are tough in the markets I know with property values under $50K.  Loans under $50K are a special product, even for owner occupants.  Also, most of your comps will be minimally or totally unrehabbed in that price range....as you are seeing.  These days it's hard to push appraisals without cash sales.  Even if you get offers at your price, and no matter how nice your house is, the appraiser still has to work with sold comps.

Even if you are in at $45K, once you add commission/closing costs and holding costs, you're working for very little money if you sell for $60K.  I'd crunch the numbers for a rental if the neighborhood is OK and the rent is really $900, and plan to keep it.

[Account Closed]

Can you really rent a 2/1 for $900-950 in a C area....in urban Detroit?  Or did you change it to a 3BDR?  I couldn't get that kind of rent for a 2/1 in some of my CA markets unless it's a special property (acreage for animals or shop for home business, etc).

[Carson M.]

what city?

[Scott K.]

Originally posted by @Account Closed:

Can you really rent a 2/1 for $900-950 in a C area....in urban Detroit?  Or did you change it to a 3BDR?  I couldn't get that kind of rent for a 2/1 in some of my CA markets unless it's a special property (acreage for animals or shop for home business, etc).

I would think not for the area that property must be in. 

I am in about the same situation as this poster is.  I have no problem renting it out for $750 a month all in at 53k

Everything will already be replaced so should not need to worry about it for a while.

[Mike Wallace]

Westland, mi

im getting $625 for 1 bed apts in this neighborhood. tenants pay all utilities.

[Account Closed]

Originally posted by @Mike Wallace:

Westland, mi

im getting $625 for 1 bed apts in this neighborhood. tenants pay all utilities.

Mike:  Where I am, 1 BDRs are a bit of a special product and the rent doesn't not always scale up proportionately on more bedrooms.  Of your 7 rentals, do you have a 2/1s renting for $900+?

[Account Closed]

Either way, youre not losing your shorts...dont worry about it

[Mike Wallace]

Originally posted by @Account Closed:

Originally posted by @Mike Wallace:

Westland, mi

im getting $625 for 1 bed apts in this neighborhood. tenants pay all utilities.

Mike:  Where I am, 1 BDRs are a bit of a special product and the rent doesn't not always scale up proportionately on more bedrooms.  Of your 7 rentals, do you have a 2/1s renting for $900+?

I have some 2/1 condos that are in a more rougher neighborhood, i get $650 for those. I only paid 15-20k for each of those.

[Mike Wallace]

but this area my flip is located commands more rent. I was talking to the neighbor and he told me he pays $800, and his place is a dump. When complete mine will be worlds better. I dont see why I cant get 900. I hope it doesn't come to that, I want to sell and free up capital for my next flip. We will see.