Found my first flip - good deal?

Question

Hi guys! New to the forum.

It looks like I found my first new flip located in Sacramento, CA. The house is a complete rehab. Total gut job. They’re asking $199k. ARV is $303k.  Ran comps, house could sell for $310k. Looking for repair estimate and offer price confirmation.

I estimated the total repair cost to be $60k. My offer price is up to $210k. It’s approximately 1200 sq ft. 3 bed, 1 bath single family with 1 car garage.

Brief explanation of the home’s conditions... The seller is unable to care for herself or her 6 dogs. It is unlivable as is. Without being disrespectful, the floors are caked to the point that the odor is unbearable. To correct this,  it needs to be gutted: new floors, drywall and cabinetry throughout. The roof and HVAC need to be replaced. The pool needs to be filled or repaired. Without having had an inspection yet, the structure appears otherwise sound.

Since this is my first flip, I honestly don’t exactly know what I’m doing. So I’m looking for advice from veteran flippers. What would be your approximate rehab costs and do you agree it’s a good deal? Am I in the ballpark with my offer price?

Account Closed · Answer

I don't believe hardly any house flippers turn a decent profit. A very high percent are full of pure b.s. and those flippers totally mislead amateurs. I've been in the construction and real estate business more than 50 years, attend many real estate clubs meeting and can sort the truth from the b.s. in a heartbeat.

I've met a few flippers who got lucky a few times and they turned a decent profit, but overall it is super difficult to find a house to flip for the right price. If (and most people don't) you do the math for the risk and factor in the cost you should be worth for taking the risk and the number of total number of house you invest including the time it takes to find a property and then factor in flips you don't make a profit on and those you actually lose on there are many more fruitful things you should be doing with your money.

Example? I just sold most of my properties in Las Vegas and had $2.5 million in cash left after paying my capital gains taxes. It could have been a smart move to do a 1031 Exchange, or flip propertied. I have licenses for 8 specialty trades and can blow through a rehab in 20% of the time it takes most flippers. After looking for properties to flip everywhere on this planet, including going to auctions, I kept doing the math and it I figured my money had to earn no less than $16,000 per month to do equal to other things I could do with my money. Even most of the best flippers don't net a guaranteed or consistent $16,000 every month and they are taking major risks with their time and money.

This is my math for the house you are looking at. Even if you have cash in the bank to purchase and rehab the house the money could be invested in an opportunity with less risk and better profit. Risking and investing $303,000 either with cash or a loan has to be worth 3% or $9,000.

Even when purchasing this property at a 52% discount your earn 1.9% or $3,652 for your risk, several months and one thousand or more hours of looking for properties, purchasing, managing, working on them, selling them and dealing with all the stress and worries.

Allan Smith · Answer

310k arv * 75%, minus repairs of 60k, is a max offer of 172k. 60k is probably low for a full gut job with a pool.

Benjamin Caschera · Answer

100% i agree with Allan Smith. Look into the electrical main, lead, and asbestos remediation too.

good luck! 👍

DJ Dawson · Answer

FULL STOP. I would first and foremost PARTNER with somebody who is experienced, I can tell you right now a full gut job is going to be more than 60k, a job this extensive will not be able to be completed without permits, and you are completely new taking a chance (I imagine) on new contractors, subs, etc.

You should one MILLION percent partner with an experienced flipper because your margins are going to be thin, and one bad deal coming out the gate can sink you. TRUST ME . I have been there.

Evan Polaski · Answer

@Randy Bayo, I bought a house, about a year ago now (where did the time go) sounds fairly comparable.  It need siding, but not a roof, new HVAC, all new flooring, and near gut inside.  Comparable size.  Total rehab was about $120k.  Admittedly, we use good contractors, not cheap contractors.  And we will typically put in a nicer design and quality, but the neighborhood pays premium for this.  We made a good profit, but our purchase price was less than half yours, and our ARV was only slightly less than yours.

Here are a couple items to think about when touring houses: LVP is about $5/psf installed.  So on this house, you are looking at likely $5k in flooring.  Tile in my market is $10/psf install + cost of actual tile.  That includes cement board, waterproofing, etc, but not the actual tiles.  Roofs cost me about $500-600/square, more if high pitch.  New HVAC is about $5,500, appliances over $2,000, drywall about $35/board hung and finished, including material.

Kyle McCorkel · Answer

@Randy Bayo

As others have said you’re not even close. Rehab could be closer to $100k

Holding costs and closing costs (on the buy and the sell) could be $20k-$30k depending on your financing.

So you’d need to offer around $150k to make a half decent profit

In general, at least in my market, anything on the MLS that needs work is priced at ARV minus repairs. So I believe you said it’s priced at $192k...add your $100k rehab to that and you’re pretty darn close to your $300k ARV. So you need to negotiate the price down to cover your closing/holding costs and profit.

Side note: this pricing makes sense in current market. So many primary homeowners are desperate to buy any house, and they don’t really care (or aren’t savvy enough to know about) about closing/holding costs or profit.

Michael Quarles · Answer

Hello Randy.   Couple things.  1- 60k for a 1200 gut is light.   Kitchen bath and gutting could cost you that

2- in California make sure you don’t violate contractors license law.   3- I alway like the calculation of 10k per month rehab time plus cost minus ARV x 70% maximum. Or 2 times cost if less than 10k. 4- I’ve bought a thousand houses and most didn’t fit into a formula

Account Closed · Answer

Run from this property. Ruuuuuuun! Please, please, please walk your first few properties with a contractor so you know exactly how much things cost, at that time. Good luck out there.

DJ Dawson · Answer

off market is the only way to go for a new investor who I imagine is using financing to do a project and thus needs higher spreads.

Michael Plante · Answer

So to be clear you will be in it for approx 270k to sell at 310kIF this is correct I think it is really bad

I don’t know what others do with flips

Found my first flip - good deal?

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