Rehabbing a burnt property

[Joel Orford]

Hello BP, I have a potential flip. However, it's a fire damaged property. Has 3 floors and I've estimated 90k- 120k on he repair cost. I could finance the building and repair cost into a 203k. Property listed on the market for 300k as is. Comps in the area average 1M. Its a Brownstone in a very trendy fast growing neighborhood. I know I would need to hire an experienced contractor that dealt with burnt properties in the past.

My question is as a new investor would this be a smart first flip or would the disadvantages out weigh the advantages so I should just forget it and move on? 

[Jeff Bridges]

What is your proposed flip timeline look like from start to finish? My understanding is that 203k loans require you to live in the property within 6 months. So are you a) able to complete the rehab within 6 months as part of FHA 203k requirement? and b) willing to move in within that same timeframe? You'll have to live there at least a year, then is your plan to sell after you've lived there for a year? Banks do not allow the use of FHA loans for short term flips. The FHA 203k has pretty harsh penalties aside from being mortgage fraud if you don't plan on owner occupying or just end up selling immediately after rehab. Just want to make sure you understand the financing product your intending to use for your flip project is not suited toward flipping activities. If this is your first rehab, it also sounds like you will bite off a bit more than you can chew with a fire damaged property and 100k+ rehab. I'd start with a smaller scale to ensure success on your very first rehab. Even a 16-30k project can be demanding and intricate. You want to learn to walk before you can run and this would not be a smart flip for a new investor to learn the ropes, especially without an experienced partner. You want to have perfected your strategy before you try to manage a 300k acquisition and 100k+ rehab. Hard money lenders might also have the same sentiments after reviewing the project scope and not be as likely to lend to a novice investor on such a project, so you'll face financing approval hurdles as well even if you did want to follow through.