All Forum Posts by: Andy Sabisch

The pictures do not look bad in terms of required renovation but pictures often do not tell the entire story. Having a flipper get into a project and find themselves underwater is not that uncommon and could represent an opportunity for you. The thing you need to know with certainty is what is he ARV. Without that, the rest is pure speculation. Remember, the Zestimate is an ESTIMATE and not a firm ARV. What are comps in the area and how long do properties stay on the market.

Have you pulled up the Rehab calculator and used it to see what the rehab should cost you?  If you have not gotten inside, you and the rest of us can only speculate on the costs.  Is the electric updated and is it actually there?  Same with plumbing?  Having the major "gut" done with the exception of the bathroom saves you some money and allows you to see what is behind things.  Looks like black mold in a few places so there might be water issues in the house.

Bottom line is you need to get into the house and do a check of the areas that will cost you money.  Pull up the Rehab calculator and take a copy with you.  Take photos of you own and review it when you get home.  Add another 10% to 15% for unexpected issues and see where it puts you in regards to the ARV.  

Buy with numbers not expectations and you will be covered . . . . feel free to post some more details and the results of your walk through so we can help you further . . . good luck!

OK, I wanted to run this scenario past you 

Looking at a duplex (each side is a 3/1) and a decent size with both separate walk-up attic and dry basement.  The rent is below market but is so because one tenant has been there for 20 years (love to have tenants like that) and the other is related to the owner.  The market rent is $900 to $950 per month.  Tenants pay all utilities (everything is split with their own meters).  

The list price is $119,000.  Walking the property, repairs that would be needed to maximize the rent to be in line with market pricing woudl be $20,000 worst case with a 15% contingency.  We have flipped houses before so that number is pretty solid.

Running numbers using the BP Rental calculator with the numbers above, insurance of $1,800/yr., $2,200 / year in taxes, 5% for vacancy, capital and maintenance and 10% for property management (our agent does property management and said she charges 10%).

With 20% down and 4.5% interest on a 30 year, the property generates $523/month and shows a CoC ROI of $13.4% with a 5 year annualized return of 19.48%

So here are the questions:

1) The return numbers are based on 20% down of the $119,000 purchase price and does not include the $20,000 rehab to maximize the rent.  That bumps the cash needed a good deal which we were bringing to the table.  What options do you have for the non-loan amount other than personal cash?  We have used personal funds for past purchases but as you can imagine, 20% into properties can deplete reserves if you start adding doors?

2) Not sure if the BRRRR option works with an ARV of $159,000.  We used a 4 month rehab period and a 9 month refinance period. Pulling $127,200 out on a refinance, the cash flows drops to $375 and the CoC goes up to 30% and drops the actual ash invested to $14,500 (much better than $48,000).  What are your thoughts on this option?

Thanks in advance for your insight . . . . finding properties is only a piece of the puzzle, finding the best way to make the numbers work and getting the right financing in place is just as important.

Andy

Speaking from personal experience, airless sprayers are not the magic device ads often portray them to be.  As George said, they spray everything so you need to spend a good deal of time preparing the area you want to paint and protect the area you do  not want to paint.  They are much better on a total rehab or new construction than doing walls or interior work where carpeting, flooring, tile or other surfaces can't get painted.  The other thing that kills me with the one I have (a Graco X5 from Lowes) is the cleanup time.  You need to make sure it is totally cleaned or you will have issues the next time you use it.  So if you see it as a time saver but are not planning to use it consistently, evaluate what you are saving based on the preparation and then the cleanup.  I have had better success in painting rooms quickly with a paint stick roller and simply toss the roller when I am done instead of trying to clean it and reuse it. 

Also, if you are planing on painting the outside of the house, you have the issue of preparing to avoid over spray (on the house and landscaping) as well as the issue of scaffolding or ladders and doing it safely.

The gadgets have their place but saving time when looked at in the entirety is not always what the literature or ads portray.

There are Facebook groups that focus on your area and connect wholesalers with buyers so do a search and see if there is on your area.  Joining a REIG is another great source of leads as there are always people offering properties to other investors.  Plus you get to find out who to use and who to avoid in the contractor arena. 

Glad to see you 1) took action and 2) had a limit and stuck with it.  We have gone to auctions where bidding got crazy and I know the buyer was inexperienced and was going to be underwater.  Twice we have seen the property go back up for sale partially rehabbed and sold for less than what it did at auction.

Stick with it and you will find that diamond in the rough.

Getting money lined up BEFORE you find the deal is always the better way to go. There are deals out there but if you do not have the finances to close, then it is a deal lost. I know there are those that say find the deals and the money is easy but especially for those without experience to fall back on and get a better rate, hitting a lender (HML or bank) cold almost always ends poorly in terms of closing the deal. Put together a notebook, spreadsheet or some other tool to start getting financing sources lined up so you are ready to call one and get the ball rolling when the deal arises. I have found that all lenders are not alike and depending on the type of loan, the type of property or what your intention is one will be a better choice than the other. We lost out on a great multi-family deal early on when we did not have the financing piece in place when we met with the seller. Made a lot of calls and had one lined up but it took 3 days and guess what, another investor that had his money lined up got a sweet deal and we missed out. Hope this helps.

Looking to see what insurance companies you use for rental properties and what type of policy do you put in place.  We have added rentals (buy & hold) to what we are doing and are having a tough time finding insurance companies that 1) insure rental properties and 2) are not outrageous with their quotes.

Thanks in advance for your input

Corey makes some good points. The ARV is essential as without an accurate ARV you are hoping the end result is what you expect. While the link you provided does not open it looks like you are looking at a property in Marion County, Oregon based on the URL. Again, do NOT use the Zestimate as your ARV as it can be off significantly in either direction. Redfin shows the value to be around what Zillow shows so the ARV may be close which means there will be other people looking at the property since it is a hot market.

The HML interest and points will eat into your profits quickly. Assuming $50K on renovations (assuming nothing major comes up in the process) and paying for much of the work to be done, the calculations from your HML are optimistic in terms of profit. Use one of the calculators out there (like here on BP) to validate the numbers . . . HMLs are usually good to sound deals off of as they look at worst case but with what you shared, not positive about the numbers. Just a rough look at the numbers I would draw a hard line in the $145K range based on 1) unknowns of what you might come across, 2) what the city of Salem might require from you (permits, outstanding amounts, etc.), 3) the high monthly carrying costs and 4) not having a solid ARV.

Looking at the auction rules, a few items to keep in mind:

1) A 25% non-refundable down payment is required for all cash sales and land sale contracts and must
be received within one hour of the end of the sale. The down payment shall be made with legal U.S.
currency; cashier check; certified check; money order; or personal check providing a cashiers check is
furnished to replace the personal check within 24 hours after the end of the sale

2) ALL PROPERTIES ARE BEING SOLD “AS IS,” WITHOUT WARRANTY AS TO THE CONDITION OF THE
TITLE AND WILL BE CONVEYED BY QUITCLAIM DEED

These may pose an issue to you and hold additional costs / expenses especially the title issues.  For example, a bank owned property through Hubzu provides you with a clear title on closing . . . piece of mind that there is not something waiting in teh wings.

There is money to be made but is this the one you want to go after?  As the old Kung Fu show used to say "Choose wisely Grasshopper" :) 

Auctions are deceiving . . . . rarely do they go for the opening bid and in fact there is likely a reserve which has not been disclosed.  We have bid on properties where the final bid was a good deal over the opening amount and did not get the property as it did not meet the reserve which does not have to disclosed.  Due to the need to have cash at most day-of-sale auctions, we have avoided them after attending a few to see how they play out. 

Not trying to talk you out of a deal but for your first flip, you are taking on one heck of a project.  The vehicles can net you a few dollars from a scrap yard but the rest will be an expensive clean out.  Remember paint and other items cant go into a dumpster and in many cases, they won't take tires and a few other things.  And as was stated earlier, you have the condition of the house that is hidden with the trash that may throw a monkey wrench in the works. You need to have at least a 15% reserve for unexpected surprises on this deal.

If this is a real sleeper in terms of value, you can count on other flippers eyeing it up.  That will drive the auction price up.  You need to know your number and never cross that number.  We have walked away from some great properties that got stupid with the bidding and when our number was reached we were out period - never say "A little more and I can make it up".  Remember, you make your money when you buy the property - not when you sell it".  If you want to go the auction route (and they do work - we just got one and close on 8/3), attend a few in person and then look at the online options like Auction.com or Hubzu.com or HUdson&Marshall among others.  Get a feel for how they work and what they require to bid and what happens when you win

As far as the estimated cost to rehab, $45 for what you show in the pictures seems on the low side especially if you are having a lot of it done and paying for it.  The kitchen is a replace, the fireplace needs attention, the roof looks good from what we can see and the windows boarded up raises questions . . . you do not know if there are any floor issues with the trash on it.  Can be a good deal of expense waiting for you.

You asked about Zillow estimates . . . . they are often wrong and not always in the good direction.  Touch base

with a local Realtor and see if they can get you a better ARV . . . i rarely use Zillow other than to see if the property is worth looking at . . . then I get a real number with a basis behind it. The house to the right of the one in the photo does not look all that good - what is the rest of the street looking like . . . can you share the address so we can see what it looks like?

Wish you the best but this might be a watch and learn so you are ready for the next one

Keep in mind that most in-person auctions require payment at the end of the auction so ensure you know the rules and come prepared with certified bank checks . . . which may make it difficult to have the funds in hand since a HML will want to have assurance that you have the property locked in before fronting you the money and you getting cashiers checks. Have you discussed this with your HML?

Could not get the link to the property to open to give you any feedback on that aspect of the deal.

Is there a reason you are looking at a 12-month flip?  That seems really worst case and if this is your first deal, that might be a large undertaking in terms of a renovation if you do in fact need that much time.  Are you doing the work yourself?  Remember a flip is different than working on your primary residence . . . you will need to pull permits for many activities and then get the inspections done before proceeding.  With a HML, the goal is to get it fixed and flipped as soon as possible based on the interest you are paying.  DO the math and see what a day of interest will run you and see how quickly days, weeks and months add up and detract from your bottom line.

Hate to sound like an advertisement but consider investing in yourself and joining BP as a Pro member . . . the calculators alone are worth the price of admission.  Our lenders love the reports.

Find the studs and get a ceiling fan box.  It fits into a hole and has arms that expand out to grip into the studs.

We have used these before where we can't get into the attic or on the first floor where access from above is not an option . . . easy to install and it will hold the weight you are looking at.

https://www.homedepot.com/p/Co...