Is it possible to Fix & Flip without the Fix?

Question

Here is the scenario:

I find a house that is being sold way under market (perhaps a bank foreclosure, auction, etc.) and that doesn't really need any repair. (It may not look as good as the other houses in the neighborhood that have been rehabbed but it is still in great condition. It is livable and sellable).

Would I theoretically be able to purchase this house and then turn around and sell it for its market value (for a non-rehabbed house) in its neighborhood?

I'm sorry that I don't have any numbers or actual details because I'm posing this as a theoretical question. I am a beginner considering adopting house flipping as my initial strategy and I was wondering if it would be possible to do so without getting into the complexities of renovations.

As I see it I would need two things to go with this approach:

• A lot of patience and hard work to find that deal that fits my criteria
• Be willing to make less profit on the deal. Since I wouldn't be commanding the highest possible price that I could get from the property were it rehabbed.

Michael Hassell · Answer

I'm a little surprised at some of the negative responses. I do not see the problem with the strategy (I suspect such deals will be really hard to find, but I would do them if I could).

Real estate is a supply and demand business. But the concept of "value" is subjective. buying an undervalued house, doing nothing, and reselling can be good business.

An example comes to mind. Way back in High School I really wanted a Ford Mustang (65-68). I found one for sale at a gas station down the street from my house. I was crushed to learn that the guy wanted $2000 for this beautiful car. Way beyond the budget of my 15 year old self. I happened to know that the car was being sold in anticipation of the owner moving out of town...so I waited and hoped no one else would buy the car. Luck won out, the day before this guy left for Alaska I walked in there with $650 and walked out with the title for my new car. It wasn't unethical, immoral, or against the law, it was the first time I solved a problem for personal gain. The car was no longer an asset to it's owner, it was a stumbling block loose end he needed wrapped up so he could go start his adventure. The money I gave him probably fueled him all the way to Canada. Houses are really no different.

There are plenty of legitimate reasons someone might sell below market. These reasons include really needing the money, needing repairs, anything and everything all the way to doing a poor job of assessing value. There is no reason that Saar, if he finds the deal he describes, shouldn't jump on it! Maybe the "value" is ready cash, perhaps it's the relief the seller seeks in unloading what for them is a problem, maybe he just knows the market better. I would happily move on a property in the circumstances he describes.

Back in 2007 I helped my family settle the estate of my Grandmother. Height of the market when everything was worth more the next day. I had to argue with my Aunt on my (to her) high market evaluation of the house. She was sure that my price was $50,000 over the top and that the home would never appraise even if I did find a buyer. Had it been her choice she would have grossly undervalued the property...and no doubt sold it way under-priced. Nothing immoral about that, she just failed to do her homework. Fortunately for her I did the right thing, listed with the right realtor, and sold for a premium. A house is worth what you can sell it for.

Maybe Saar just brings a little extra marketing prowess or determination to the table. Perhaps the seller doesn't do the internet and would never be able to market on CL, Zillow, and Trulia.

We all deal in our special knowledge of real estate, that's what makes all this possible.

Saar, go grab your deal!

Rocky V. · Answer

@Alexander Felice

It's not realistic for those that sit on their bu**s and wait for thinks to happen. I close many deals like this. You need to target non-MLS deals and then be able to put them on MLS for the most exposure. My most recent deal which funded last month was purchased for $53K, rehabbed for $1,500 (trimmed trees) and sold 5 days later for $88,700. Property had an ARV of $130K but needed about $30-40K in order to achieve that. I decided to list it at $79,700 and received multiple offers within the first couple of hours. You typically do not have to worry about seasoning requirements because you will be targeting cash buyers.

Duane Ortega · Answer

@Saar Kagan

Would I theoretically be able to purchase this house and then turn around and sell it for its market value (for a non-rehabbed house) in its neighborhood?

>>> Yes, of course. Need to consider end-buyer financing. If cash, no problem. Otherwise, need to most likely sell to large down payment buyers so they won't have those FHA restrictions as stated above.

>>> Another scenario would be if the houses need work and cannot be sold to a retail end-buyer, and they are being sold from HUD or REO. You can just double close (can't do assignments on these) and sell it to a cash rehabber. Problem solved - you just flipped without the fix.

Good luck,

Duane.

Saar Kagan · Answer

@Jacob Pereira the reason I wasn't attracted to wholesaling is because from what I understood it requires me to build and maintain a list of potential investors that would be interested in buying deals from me. I see at as simpler to just list on the MLS and market on the Internet. If an investor wants to buy from me there, they're welcome to :)

Also, my thinking was that I could potentially make a larger profit if I find a property that's under market enough, rather than just making a standard wholesaler's fee.

Granted this would be a lower volume business than the higher turnaround wholesaling biz..

Anyway, this is just speculation so I'm looking to you guys to correct my thinking on this.. which you guys are doing an amazing job of doing. This discussion is great! Are all posts this lively? This is only my second post on BP!

Jacob Pereira · Answer

@Saar Kagan, I'm a little confused by this question; why not just wholesale it? You're taking on a lot of additional time and transactional costs by buying it outright and then selling it again. Or is it simply that you think your profits would be higher if you take possession and list it on the MLS as compared to selling directly to an investor?

It seems to me like it's a lot of additional steps for minimal additional gain, unless I misunderstand something.

Luc Boiron · Answer

I'm not so sure that no value is added.

Properties that need work here sell at a price that I can't make money at. Part of the reason is that if I can increase the value of a house by $50k with a $20k rehab, there might be $25-30k of transaction costs (lawyer costs, land transfer tax, agent commissions (+13% sales tax on commissions), carrying costs). So to me, if I buy a house that needs work at prices that most properties are worth, add a lot of value from a rehab, I can still not make money.

I obviously don't do those deals. I find a discounted property, then do my rehab and sell. The difference is the discount on the front end. If I were to find a property that was in great shape and ready to sell, and was able to get it at enough of a discount, I would simply sell the house again. I don't think finding a deal is luck, and I don't think getting a deal is not adding value. The rehab is not where I make money, even though you see it as adding value.

Alexander Felice · Answer

I don't think anyone is saying there is a problem with this strategy as much as it's not realistic.

What OP seems to be forgetting is that competition is FIERCE in real estate. If you can get a house for $X and sell it for $X+ what is stopping the next guy from doing it? what about the 300 other guys who want to do the exact same thing? The market insists that you create value so a buyer has a reason to go with you over the competition.

Now that's for retail, for Wholesale this is done by finding/creating value on the seller side. Find a home that the buyer has reason to sell that exceeds the total value of the house. Yeah they will sell for 15k under what it's worth, but you have to sell it FAST/with cash/pay off a lien/etc. You create a value for the seller that leaves a spread in dollar value for you and the end buyer.

Finding a house and just selling it for profit while adding no value is what every single investor in the world would want to do. The reason investors add value is that competition forces us to.

Alex Franks · Answer

In todays market their are going to be far and few deals like this. Banks are not stupid and will and do these type of deals themselves. I used to teach this, as the lipstick approach to real estate investing. I loved buying house that needed , carpet , paint, fresh landscaping new fixtures, and remarket. Two week from start to finsh could have been quicker and most case they were.

Just needed a bit of lipstick to make look pretty. Best house I ever purchased like this was in Kannoplis NC just out side Charlotte NC. Purchased for $110k site unseen .My parter was nervous. We showed up , we did not even have to paint or put in carpet. Paid landscape company to freshen up the yard. Resold for $149k as turn key rental. Keep in mind that was 2013.

Now fast forward to todays market these types of deals are just harder to find.

Yes less profit on those but faster turn time.

Hope that helps

Alex

Polar Prutaseranee · Answer

Totally. If you purchase way below market value, or at auction, you can definitely just list it. It's basically what people do all the time when you see that a home is sold "as-is." You may not get top dollar but you'll get something. You can also just wholesale it off too.

Valerie Hiscoe · Answer

Hi Saar

Just coincidentally, I saw your other post so knew you were just at the point of exploring different strategies. As others mentioned, this one would be a great, albeit rare one. What surprised me however is that you mentioned buying in cash. Although on the outside that seems like a very responsible and risk free decision, you may also be missing the point of one of the most imporant parts of real estate investing which is leveraging. For example, if you buy a property with $100,000 of your own money and sell it for $120,000, you've made a 20% profit. However if you had purchased it with a $20,000 down payment instead, selling it for $120,000 would be 100% profit -$20,000 profit for your $20,000 investment. So theoretically, you should have purchased FIVE properties with that $100,000 using "other people's money" (as they say) instead of one. The exception to that I'd say would be your principal residence. Although there you could also use a HELOC (home owners line of credit). The true beauty of real estate is in the ability to leverage. With what other kind of investment can you spend $20,000 (or less) to invest $100,000. Rich dad, poor dad's number one recommendation for making your money work for you.

If you want to create a business strategy, I highly recommend you speak to a lender for more info. And not just any lender - make sure it's one who specializes in dealing with real estate investors. That's one of your most important reasons for finding a club or "meet-up" in your area (check menu above) - to network and make the connections that will form your investment team - your bankers, lenders, lawyers,etc.

So welcome to BP and I compliment you on taking the time to understand yourself, your time constraints, your risk tolerance and everything else that will help you choose your strategy/niche. Good luck with it all and have fun.

Is it possible to Fix & Flip without the Fix?

Is it possible to Fix & Flip without the Fix?

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