Need advice on financing or flipping my first investment property

[John Edwards]

I have a friend who (for various reasons I won't go into here) has a property he needs to sell quickly and that I have offered to buy. It's a residential home that needs some significant interior work to make it desirable. The house has a tax-assessed value of roughly 300K, a Zillow FMV estimate of roughly 350K and I have a signed agreement with my friend for 225.

I think there is value there but after having been through the house a couple of times and having shown it to a contractor for advice on a renovation, I'm not sure how best to get that value out of it. My ideas:

1. Renovate (which apparently will cost well over 100-150K but could improve its value)
2. Tear down (build something new on spec, maybe? I don't have the cash to build out of pocket)
3. Subdivide (it's a lot that's roughly 2.75 times the usual in this upscale area)
4. Or just look to flip it (where would I even begin? My price agreement is good for 90 days)

Any constructive advice from those who have done this kind of work before is much appreciated. I'm looking for help on what might be my best course of action for financing as this was a very sudden opportunity and I only have about 10K in cash at the moment.

[Katherine Robbins]

I would recommend wholesaling it as well. You would basically be selling the contract you have with your friend to someone else for a slightly higher price and you'll pocket the difference. It's called a contract assignment but you usually need permission from the seller in order to do this and sometimes they don't like the idea of you making money off of them. You could also do a double close where you close on the property and then immediately sell it to someone else for a slightly higher price. Or maybe a simple way would be for you to arrange with your friend to give you a referral fee for finding someone to buy it from him. In some states this is illegal so you'll just have to look into how to make it work. 

I think your idea of subdividing it would be a good place to start too. You would most likely need to close on the house first though. But check out land prices in the area and see if you can get a surveyor to check it out. I would also recommend having a real estate agent run comps for you. I wouldn't rely too heavily on what Zillow says since it's never seen the house and it just based on algorithms. AND in today's market, the tax assessment doesn't always reflect the value either so maybe you have more room than you think you do. 

If you still want to consider buying it and flipping it you could look into hard money lenders. If you can find someone that will give you some cash and be a second lien holder on the property then you would be able to flip it with hard money. I've flipped most of my houses with hard money and had someone put down the cash for me and just be a lien holder so you have an agreement with them separately that if something happens to you or the property, that they get their cut first. When you resell for a profit, they get their cash back plus a little interest and you get to pocket the rest. 

Hope that helps!