Should I Flip or Should I Flop?

Question

I'm preparing to buy and flip (ARV of $275k) an off market home through a personal contact.  The neighborhood is an HOA and very well maintained.  Of the 200+ homes there are 6 currently for sale and 15 sold this year.  There aren't many homes for sale in the neighborhood EXCEPT FOR THE BLOCK where I want to buy.  In fact, the home directly across the street is For Sale By Owner ($239k listing) and the house next to it is a possible short sale ($179k).  And two doors down from that one-in the cul de sac-is a recent foreclosure ($169k).  Obviously, there is more info to be had.  But, what are your feelings about whether to move forward?

Bill Hinshaw · Answer

If everything you've shared is accurate, your numbers are favorable for a flip. How solid are you on the $20k rehab estimate? That seems very low. I want to find a house one day that only needs $20k in repairs :) I spent $5000 in appliances alone on my last one (reasonably above average Kitchen Aid).

• 275k ARV
• 258.5k after commissions
• 30k profit assumed
• 190k purchase price assumed

These numbers would leave 38.5k for rehab, carrying cost, closing costs, etc. I would really push for the 190k selling price to protect yourself as much as possible.

Also - how are you coming up with the 275k ARV? You have to be as solid as possible on that assumption. This is especially true since your home will be an outlier in size relative to others in the neighborhood. Talk to realtors who are active in the area. Go see the $239k home. Since it's FSBO, is the owner just fishing to see if they can get their price? Did you discount the average $/sq ft to account for your house being larger? Is anyone else doing rehabs in the area?

It is a little fishy to me that the developer is going to let his/her house go at such a significant discount. They should know that market better than anyone.

Greg H. · Answer

@Bobby Holley

What are you buying the property for ?  You do not want to be on the high end in the neighborhood when other properties are 100K less.  You are much better off pursueing the lower end property

Personally, if the neighborhood has the "potential" to have homes with an ARV of $275K,  I would pursue the lower end flips.  I would be interested in the home for $169k if I could buy it for somewhere around 70% of the ARV.

Mike Cumbie · Answer

If across the street is not selling at 239KNext door is a short sale at 179K2 doors down is 169.

What makes the one you are looking at an ARV of 275K?

Is there alot more square footage, extra rooms, huge garage workshop? WIthout specifics it does sound like the best house in the neighborhood. I would rather look for the worst house that you can turn into the best.Good luck in it though!

Brent Coombs · Answer

@Bobby Holley, I suspect the HOA costs are VERY annoying once the income stops due to vacancy. Are you certain the ARV is $275k when Sellers all around it are having to settle for circa $100k less? A big extra piece of info needed is: what price are they asking? And, according to your analysis (which we would like you to share here), what price would make sense to you? Cheers...

Bobby Holley · Answer

The developer no longer lives in this house.  It's just the house that he built for himself when he was building the rest (or his portion; there may have been several developers) of the subdivision.  There are a couple rehab things we will do ourselves that will save us money: painting, floor removal and basic landscaping.  Further into the subdivision a house that was in foreclosure back in Oct 2010 was listed Jan 2014 and sold Feb 2014 for the full asking price of $275,000.  That house has similar more SF because it has more finished basement by about 1,000 SF and it sits on a corner lot.  The Zillow estimate (of which I am fairly skeptical) is $358k.

Below is a price history of a home 2 doors down from the one I am interested in flipping.  What do you make of it?

Price History

DATE

EVENT

PRICE

AGENTS

03/02/15

Listing removed

$202,000-1.5%

02/26/15

Sold

$205,000

02/26/15

Sold

$205,000+1.5%

12/11/14

Listed for sale

$202,000-37.0%

04/06/12

Sold: Foreclosed to lender

$320,648+9.4%

06/27/07

Sold

$293,000+26.0%

11/03/06

Sold

$232,500+45.3%

03/19/02

Sold

$160,000-22.0%

05/14/01

Sold

$205,000+20.7%

05/01/98

Sold

$169,900

Bobby Holley · Answer

That gives me hope that doing a quality rehab job could supersede a distressed property or two nearby.  Thank you for the response.

Mark Freeman · Answer

Yes.  It is risky to try and flip the biggest, best house on the block.  I would be conservative on the numbers and if you can purchase the house cheap enough that even conservative numbers work - it might be worth while.  If things go great there will be more upside, but work out the numbers where worst case scenario you don't get burned.  (Some of my best deals have come when I was concerned and extra conservative on the buy side and things worked out nicely on the sell side).

Scott W. · Answer

just cuz a short sale is on the market, for a lower price, doesn't mean that's what your flip will appraise for. if you rehab the home in tip top condition, you will get a tip top price.

I know a guy who flipped a house and there was a foreclosure sold next door. he still got top $.

I flipped a house that had a home wholesaled to a homeowner from the sheriff sale.  my flip appraised $15k over that one.

Bobby Holley · Answer

The asking price is anywhere from $190k - $200k (TBD).  We expect $20k in repairs.  The home is 30% - 40% larger than most of the homes on the block and needs mostly cosmetic updates (e.g. hardwood floors, granite countertops, stainless steel, carpet, paint)

Bobby Holley · Answer

I've only seen pictures of the FSBO.  The owner is 90 years old and still jogs most days.  The quality and charm of his house is nowhere near this one.

Should I Flip or Should I Flop?

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