Let's say that you are doing a flip with money borrowed from a hard money lender. You bought the house, rehabbed it, and at the time of selling it, the estimated ARV dropped significantly, leaving you with little profit or nothing at all to pay back the loan. Is there a way to minimize this risk and complete a successful flip? or is just flipping during a crisis a bad idea?
Hi Carlos. There is definitely opportunity within the current market conditions to flip. As Greg and a couple others have mentioned it really depends on your local market. I think being prepared for all potential outcomes is key regardless of market conditions. I would recommend being prepared (comp rents) to approach it as potentially being a buy and hold situation, with the ideal outcome being your fix and flip if that is your preference.
Let's say that you are doing a flip with money borrowed from a hard money lender. You bought the house, rehabbed it, and at the time of selling it, the estimated ARV dropped significantly, leaving you with little profit or nothing at all to pay back the loan. Is there a way to minimize this risk and complete a successful flip? or is just flipping during a crisis a bad idea?
You can make money flipping in any market if you know what your doing. First You need to know your market and the values as well as rehab costs. Next you need multiple exits in case you miss the mark. Real estate values do not change overnight especially when there is ample demand and low inventory. Last you do not want to use hard money if you are just starting out. It’s very expensive and will East into profits fast. You want bank financing or private lenders.
Hi @Carlos Tiburcio. The issue you'll run into is that you don't want to throw good money after bad. Spending more money to try to get your ARV up will be difficult to turn a profit plus it'll take you longer which could drop the ARV more and would mean more interest payments. It's POSSIBLE it could work, but the odds are against you.
I agree with the comments by Greg above. I just had my offer accepted on a flip in a good neighborhood where the numbers work to fix and sell in a few months, if ARVs hold steady. If they drop, it’ll make a good cash-flowing buy and hold. In my humble opinion, you can’t sit still and do nothing waiting to see what happens. Move forward with a back up strategy that you’re just as happy with.
I wouldn't flip anything with an ARV above FHA loan limits right now. Comp the ARV rents and make sure the property can cover itself as a rental in case things go bad.
In my opinion, the ends of the market may suffer, but that's not where I play anyway. The guys flipping the million dollar house may find that their million dollar buyers are now looking in the $750k range. The guys flipping the $40k junk may find those buyers are just no longer qualified to buy. Additionally, banking on appreciation or trying to get every penny possible out of a house will become even worse strategies.
In my area, 70% of the buyers lie between $125k and $275k, so my model has been to pick a price point for a property, and make it the best property at that price point on the market, so the entirety of that 70% of buyers is fighting over said property. If the buyer pool shrinks, at least my pool will shrink last, and my properties will be the best in the bunch.
Just some food for thought. Every area is different and everyone runs their business differently.
Hi Carlos. There is definitely opportunity within the current market conditions to flip. As Greg and a couple others have mentioned it really depends on your local market. I think being prepared for all potential outcomes is key regardless of market conditions. I would recommend being prepared (comp rents) to approach it as potentially being a buy and hold situation, with the ideal outcome being your fix and flip if that is your preference.