What do I like, FLIP or New Construction?

[Vijaianand Thirunageswaram]

Howdy Investors,

Hope all going well. It's been some time since I posted last one and so I thought this story would make it an interesting discussion. 

If you are following me or my post in BP, in my last update, I mentioned about our first New SFH Construction project began this year. I am happy to share that we successfully completed and closed it last month. Check it out below,

https://www.har.com/homedetail/8412-knox-st-houston-tx-77088/13869082?sid=3921465

I was so happy with the outcome and return as well even though it took longer than we expected due to the weather and few other things. 

Here are the numbers,

Sales Price - $195,000

Purchase & Construction Cost - $125,293.32

Sale Expenses - $14727.71

Tax Prorate = $308.85

Holding Cost Utilities (Electric & Water) - $1006.09

Total Sale Expense - $16042.65

Final Profit- $53,664.03 - 42% Split between 2 partners for 9 months. 

I am sure everyone would be like, that's great ROI. Yes, that's true, New construction has very good margin which many investors new. We all now how much money new builders are making on their sale and willing to give away all types of incentives to real in the buyers. But it's not easy work, it's hard work. As they say, Hard work pays off.

Anyway, coming back to the topic, this question has been asked by many of investor friends and clients. Do you like FLIP or New Construction?

My answer, it depends. Both has it's PRO's and CONS's. New construction is somewhat of a smooth ride after you pass the lot clearing stage compared to FLIP which is like box of chocolate. You don't what's going to come next. 

For ex: We started a FLIP in May 2019 and planned to put in Market in Jun and got delayed to Jul. We spent almost 50k closing pool and everything. We priced bit higher expecting to push the comps which we usually do and it works. Buy end of summer, we couldn't' get any buyers. At that point,we become desperate and reduced price to the market rate, we got few offers but couldn't agree to it. Now it's almost 6 months and we are seeing some foundation cracks. Ended up getting foundation report done and had to jump to our exit strategy to pay off our lenders. So it's not easy ride but it keeps the life interesting and exciting.  

Will we do it again!  Again it depends on the deal. Every deal is different. We are learning lesson on every deal but are we using those lesson learned from previous experience. That's key question. Sometimes we just forget about when we see an attractive price and jump on to it and hoping to get out good. One big lesson we learned few times already, it doesn't matter the location, if it's over 175k, it's going top take time so plan accordingly with investors.  

I would New constructions if fun too but not as challenging as flips. 

Currently, we are on the next construction project. Found lot 3 months ago and purchased it and we are re-platting/subdividing to put 3 SFH around 1500 sqft. Hoping to start construction in NOV if the re-platting completes on time.

We also have another quick flip going on which is below $150k and hope to get out quick. Let's see how it goes...

If it's easy to make money, every one will do it right :-)   Don't forget to challenge yourself and keep chugging along...   

What I don't like is, writing check to Uncle SAM on the short term capital gains :-(

Happy investing folks!!!