Could this house be too small to flip?

Question

Hello BP Family,

Okay! Here goes my first forum post...

I recently found a house here in Houston that (according to Zillow.com) has been on the market for a bit over 180 days. Per MLS, it was a foreclosure and the price has been reduced.  In my attempt to run conservative numbers on this home I believe I can fix and flip it, however, I wonder: could it be that the reason this house is still active is because it's too small?  Now, it could be that the amount of repairs don't add up to a profitable purchase, but I haven't walked through it yet to tell.

It's a two-story, 3 bdrm/2.5 bath house (1,285 sq. ft)... and the listing states that ALL three bedrooms are 10x10...  Could this be a "flipping" roadblock?

I welcome and appreciate your feedback.

Tom Mole · Answer

@Nicki B., congrats on getting started and getting advice. Have you sent a colleague request to @Mark Parzych yet? He's apparently in your area and at your same experience and ambition level. You could probably learn a lot from each other. REI is, after all, a team sport. He strikes me as a highly analytical type, like me. We sometimes have trouble getting past the analysis phase, but boy can we run the numbers. If you could use that skill, consider partnering up.

Like Mark, I took the info you put in your post and found the listing on Zillow. It looks like a good find. Please indulge me a couple of questions:

• Have you visited the property yet? What is the neighborhood like? 
• Who lives in the neighborhood (low income, worker bees or ritzy soccer moms with disposable cash)?
• What condition is the house in? 
• Do you know a trustworthy construction crew that does quality work?
• Have you discussed the possibilities with your HML guy? Does he need you to have "skin in the game"? Are you certain that he will lend on ARV? 
• How do you plan to fund rehab and construction costs? 
• Would a partner help?

I have more, but this is good start. I'll sent you a colleague request in couple of minutes. If you want, we can trade contact info and go over the more specific details. This could be fun! I'd like to see you make it.

Mark Parzych · Answer

Also none of the other houses in this subdivision has all 10x10 bedrooms. For a home less than 20 years old I doubt the MLS listing is accurate. With those Houston 1950s and earlier houses all bedrooms being 10x10 is very possible.

Marian Smith · Answer

Nicki, I have two 1978-82 homes about 1200-1300 sq ft and they rent very well and the homes around have always sold well.  Any home in a developer type neighborhood will almost always sell or it wouldn't have been built in the first place.  Sorry you missed out on that deal, but no worries because if we have protracted lower oil prices the Houston market  you may present some even better opportunities.

Jake, my daughter stayed in Kingwood last summer and it was quite nice...the largest masterplanned community in Houston.  And supposedly off a lesser crowded freeway.  She interned at a Seimens which was in a high rise office area near the airport and near Kingwood.  I think if I were going to invest in Houston I would consider there.  When my daughter told a Houston student where she had rented an apartment, he said she had picked the safest place in Houston.  (which was our hope/intent) Also be wary of Greenpoint, because it's nickname is gunpoint...and that is absolutely everything I know about Houston.

Jake Landry · Answer

Another small piece of advice I would like to give coming from a background on residential construction is add 20% to your construction budget and you might not go over what ever your estimating. I started out in the custom home building business 15 years ago and have worked in various rolls in the residential construction industry and 20% seems like the magic number that most people go over budget by and that's when they swear they had thought of everything. Sometimes my 2 cents ends up being worth about 1 but it is always good to run numbers conservatively. I'm in Austin and travel to Houston quite often. I have been thinking of investing in a rental home there. Do you have any good recommendations of areas to look into? Good luck with your REI future!!

Best,

Jake

Nicki B. · Answer

@Tom Mole

Although I responded to your PM, I did want to come back to follow up with some of your questions here.

I did run a few options through the HML company and was optimistic about the possibility of doing a "no cash out of pocket" deal, but the property sold yesterday in an auction (which was not disclosed to the public on the MLS site).  The rehab cost was going to be included in the loan. And I have not considered working with a partner.

Let's keep in touch!

Nicki B. · Answer

@Mark Parzych  sorry! In my disappointment I failed to answer your questions: I was thinking HML with 70% ARV. Congratulations on your deal! I wish you much success in your endeavors.

Nicki B. · Answer

@Mark Parzych thanks for your insight and feedback. I guess a lot has been learned with this question...

Mark Parzych · Answer

Your description is so specific I found the house you are looking at. I think there is potential here depending on what the rental market looks like in this area. The huge yard is a big plus. Would you go hard money or conventional loan? I think it's at 60% ARV with a moderate remodel like laminate floors, new paint, new appliances, updated kitchen and bathroom. I'm a beginner as well but it might make sense. A Realtor has more info for actual comps. Newer construction homes are in a subdivision over which are selling for at least twice this amount. If you can remodel you have to expect to sell for below new construction prices.

I know appreciation shouldn't be considered, but one downside is that this area will not have quick appreciation vs other areas in Houston. My first deal (with similar price point and still pending) won't have great cash flow but the area is showing signs that it will develop. It's very possible the land itself will be worth my purchase price in less than 3 years.

Nicki B. · Answer

@Sandra Gibson

Yes I thought the same thing and will definitely confirm if indeed they all are the same size.

@Jeff Wallenius

I appreciate the suggestion. I agree with using conservative figures and will look into following your advice. Thank you!

Could this house be too small to flip?

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