To Flip or BRRRR????

Question

Here is the deal, would like to know what others think:

2 bedroom 2 bath condo bank owned.

Listed at $201,000. Would like to offer $175,000. Estimates are $30,000 for rehab. Rents are $1600. HOA is $250/month. Taxes are $2500 per year. Insurance is $25/month. 5-10 week rehab. Have hard money lender at 75% of purchase and rehab costs.

ARV is $245,000.

Arianne L. · Answer

@Sammy PatelIt really is tough. But don't let yourself settle for something that won't make money or worse, end up losing money. I have had luck with short sales and offering on stagnant properties. Try looking for listings that are 90 days or older that show some sign of motivation.

Arianne L. · Answer

@Sammy Patel With those numbers, I would say neither. If your rehab estimate and ARV is correct, you have to offer much lower than $175k to make money flipping or renting.

Rental:

1600 income - hoa 250 - taxes 210 - insurance 25 - vacancy (8%) 128 - capex/repairs (10%) 160 - property management (10%) 160 = 667/month if you pay cash.

If you use a mortgage - 30 year amortization, 4.5% interest - your payments will be $710 per month. So, you would net Negative $43/month.

Flip: assuming it takes you 6 months to fix and close on the sale

245,000 ARV - 175,000  purchase price - 30,000 rehab, - 15,000 realtor fees - 10,000 closing costs (selling and buying) - 9,000 hard money holding cost - other holding costs 2425 = $3,600

Negative $43/month cashflow or flip profit of $3600 in 6 months

Offer less, or keep looking

Bill Jacobsen · Answer

I agree that flipping or long term hold is a personal preference.  My problem with this is that I don't think it is a money maker either way.

Figure 6 months to buy, fix, and sell.

Interest on loan to be over $1,500 per month

holding cost to be $483 per month

estimate for ongoing maintenance and management if a hold.

Estimate selling costs to be 7% if a flip.

Good Luck.

Bill

Joe Villeneuve · Answer

If you flip, what is the plan for your profits?  If you hold, do you have a plan for moving forward into the next deal?

The strategies used for every property have more to do with what you're next entrance strategy is, than a pure "profit vs. CF" option.

Many a time I've flipped when others would have held (even me if this was 3 properties from then) based on how my "exit strategy" from this house played into the "entrance strategy" of my next property.

Once you start to look at ALL properties as part of a string of properties, intertwined, you will move faster and be much more profitable.  Too many REI go from one property to the next, basing their success on the immediate property only.

Tony Deal · Answer

I believe that is personal preference. I prefer to flip. But I'm good at construction and good with the contractors we use. So flipping comes more natural to me. Where others enjoy the benefits of rentals. I think you will get good reasons for both sides.

It also depends on your financial position. If you can rehab and rent then use the equity to leverage another deal, that's never a bad option.

It also depends on your financial position.  If you can rehab and rent then use the equity to leverage another deal, that's never a bad option.

Sammy Patel · Answer

So some changes have occurred. We can get the rehab done for $20-$25K and the vacany rate in this area is about 4%.

Sammy Patel · Answer

Thanks for the feedback. The tough part so far is finding any properties that are so heavily discounted in our area. We live in an area with low inventory and high demand. This is a foreclosure and the bank has it listed for $201,000. My realtor says $175,000 may be tough and less will be harder. We are completely new to this process and this would be our first property, but in the 4 months we have been looking for properties less than 70% ARV has been tough.

Sammy Patel · Answer

Based on my calculations cash flow is break even. Mortgage once I refi if rental is about $1400-$1500 for all costs. This only the case because we are trying to do the BRRRR method where when we refi we pull the cash back out that we put in. If we only refi what our hard money lender gave us and kept our money in the property then it would be cash flow positive. Unfortunately we would need to save to get the next property which will take a year or so.

The complex was recently renovated on the exterior. The complex is on a major road in an area that is very populated. Our realtor stated they could find a tenant in a month fi we rented. They estimate no more than one month for vacancy. My guess is the HOA recently renovated the complex. Across the street are million dollar homes. A major hospital is within 2-3 miles. The property has sat for at least 50 days on the banks books. When I run the property thought he flipping calculator it is tight. I only make $15,000 with the numbers I entered. Basiclly, purchase desired at $175,000. $30,000 rehab, ARV $245,000. Monthly payment for interest only hard money loan is $1750. HOA is $250. Taxes are $2500 annual.

So when I ran those numbers through the flipping calculator I get $15,000 profit. Still not sure if I should flip or BRRRR and sell in 3-5 years.

Our plan was to BRRRR and get another property. After 3-5 years sell this property or get multiple properties to monthly cash flow of $10,000.

Charles Moore · Answer

normally I prefer buy and hold, but the extra risks and irritations associated with condo HOAs, I would say get it off your books as fast as possible, so either flip it or don't do the deal.

Robert Blanchard · Answer

@Sammy Patel How "strong" is the HOA?   Some investors detest having to deal with a HOA in a Condo Complex due to the possibility of a special assessment.

How many units in the Complex?

How many are Rentals/ how many are allowed to be rentals?

Does the complex look to be maintained well?

If the HOA has enough put away for larger repairs (roof, parking lot repair, etc) then it might not be an issue.

Usually Condo's do not appreciate as fast as SFH but that might be different in your area.

Do you think the Bank is motivated to get this property off of their books?

Please let us know what the Bank counter offers.

To Flip or BRRRR????

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