Newbie Q: analysis for fix and flip

[Shulem Deen]

Hi all -- I'm new to real estate investing, but looking to get into SFR fix-and-flip. (I'm in NYC, and looking at properties in Hudson Valley and Upstate.) I'm hitting a big stumbling block, though, and wondering if anyone with experience can share some tips.

From everything I've studied, it boils down to three numbers: 1) Purchase Price, 2) Rehab Cost, 3) ARV. The formula being: Profit = ARV - Purchase Price - Rehab Cost.

The problem I have is getting reliable figures for 2 and 3 — Rehab Price and ARV.

For rehab price: getting a contractor to give me a ballpark estimate seems the natural approach, but that seems doable only for 1-2 properties. If I'm looking at a dozen properties, it's hard to ask a contractor to run around with me to them all.

For ARV: the right way seems to be to look at comps. But without experience, where do you get reliable numbers? I've asked my agent to run a CMA for me on some properties, but it seems impossible to know if it's apples-to-apples, given that I don't know if those are pre- or post-rehab. I can use the basic criteria (BRs/BAs, sqft, year built, etc), but one property might be a dump sold to an investor for a gut-job, and another might be a beautiful turnkey for an owner-occupant.

Anyone have any insight to share? Appreciate any and all thoughts.

Shulem

[Darius Ogloza]

@Shulem Deen

I am going to start with the most obvious point: if it were easy to analyze likely ARV and rehab costs, everyone would be doing it! Right?

Like with anyone other business venture, there is a learning curve involved. I have been doing this kind of work off and on for more than 10 years and still "miss" now and then. The only sound advice I can give you is to study your target market like it were your full time job. Get on your computer and analyze every sale and try figure out why similar seeming properties fetched different prices. Attend all of the open houses you can in the area. Why are they selling where they are? Location? Quality of rehab/materials? Access? Etc. In this way, you will come to develop a knack for estimating ARV's.

As to rehab costs, the learning curve is quite long.  You can however get a sense of the cost of materials by scanning various websites for building materials, appliances and finish items.  How much does a 2x4 cost per linear foot?  LVL?  A decent vanity with quartz top? As to labor, you can consult local folks as to hourly rates - framers, finish carpenters, electricians, plumbers, drywallers, insulation companies.  Once you have a sense for the cost of materials and labor, you are essentially there.     

You also need to look into the local cost of professionals - architect/designer, engineer if you intend to engage in larger projects.  Also, you should get a sense of the cost of permitting in your area.  Every municipality pretty much has a website you can study to learn costs.  Or talk to the folks behind the counter.