Buying a Flip to Sell in April, 21'!!! Good Idea or Bad Idea?

Question

I'm looking to purchase my first flip property in the coming weeks. By the time it's rehabbed and ready to go on market, it'll be about April of 2021. I know each market is different however, given the effects of COVID, what do you think the general overall market will look like in 6 months? Do the behind the scenes foreclosures that have yet to take effect scare you? Should I expect a significantly lower sale price than the current comps or are todays comps reliable? Curious what you all think the next 6 months looks like for sellers.

Will Gaston · Answer

@Andrew Rosenbaum everybody on this site (including me) is just guessing.

I can tell you it could be a bad idea if you don't have multiple exit strategies.

What will you do if you can't sell at your expected ARV? Would it cash flow as a rental? Could you move into it? Could you AirBnB it?

If the answer is yes to some or most of those, I say go for it.

Brian Sigmon · Answer

@Andrew Rosenbaum I would purchase complete the rehab as quickly as possible, less speculation on ARV and less interest payments. With low interest rates and a strong market demand will be there. Just my 2 cents

Andrew Rosenbaum · Answer

@Brian Sigmon it's not that it'll take 6 months, although I'm doing the work myself on nights and weekends since I have a full time job, it's that I think it's smarter to list it in the spring when there's more demand. Is that thinking wrong? I'd certainly sell in the winter but I just don't want it to sit long. I guess since it's my first deal I just want to be as safe as possible.

Brian Sigmon · Answer

@Andrew Rosenbaum how is a $10-$15k rehab taking 6 months? If you're purchasing in coming weeks?

Trent Ellingford · Answer

@Andrew Rosenbaum your margins on this are already small. If your repairs truly are $10K instead of $15K and you sell for $220K instead of $200K that changes things, but if that's a hope or assumption that's when you get burned. On F&F's I suggest to focus on deals that you can get in and out of quick. At the beginning of the year when the moratorium on foreclosures is lifted along with the moratorium on evictions and rent and mortgage deference coming to an end there will of course be an effect to the market and pricing. This will create opportunity, but the last thing you want is to be mid flip with no other exits on a property that had a projected profit of $20K-$30K and it's just lost that in value. You could do things to mitigate the risk like a debt equity blend with an equity partner, or find a deal you can turn faster.

Darius Ogloza · Answer

The plan you describe is the plan we are essentially pursuing out here in my corner of California.  We are betting on sustained demand.  No crystal ball; just the perception that the white collar industries that drive demand for housing in our upscale areas (our niche) will continue to do well and that the desire for young families to move to the suburbs will remain a strong element of demand.   If we were flipping in B- or C neighborhoods where the purchasers tended to work in retail or hospitality, my view would likely be different.

Andrew Rosenbaum · Answer

@Brian Sigmon, so the deal is in the Philly suburbs. $130k purchase price, $15k rehab because I'm doing it all myself and $200k ARV. Using investor money at 12% APR so assuming a 6 month flip starting in November, I'd have to pay around $9000 in interest. All of my numbers (other than the purchase price) are super conservative so I honestly think that the rehab would be closer to $7500-10k and the ARV could really be like $220k based on comps.

Brian Sigmon · Answer

@Andrew Rosenbaum Can you help provide more insight on the deal, what are the numbers? What market are you in? That would help clear a lot of questions and help provide better insight. Real estate is already correcting in some markets and holding steady in others. It's also slow to correct, the average price change over a 24 month span in the last recession saw home values drop by -18% (on average, over 24 months), some markets dropped more and some less. If you are all in with purchase, closing cost and repairs at 70% of the ARV (Value it will likely sell for fixed up), you are more than likely safe. Worse case scenario would you be able to sell the property for 80% ARV?

Jonathan Barr · Answer

@Will Gaston Agree with above.   I would add value your numbers maybe 10% less on ARV just to take into account possible hit prices.   I don't think we have 2008 on our hands again but we will see pain from this.   I don't right is time to shy away from deals.   You just need find new ways to mitigate that risk.   Maybe that will affect your offer price and then you pass if doesn't work.   Right now is not the time to get into deals that maybe are on the fence. Especially if this is your first flip you need to leave cushion for mistakes your will most likely make. That's my two cents.

Buying a Flip to Sell in April, 21'!!! Good Idea or Bad Idea?

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