All Forum Posts by: Andy Sabisch

Quote from @Account Closed:

Andy I appreciate the response. I totally agree I should have started with a smaller flip. My main concern is the monthly HML payment is now fairly large after having to extend it past its original maturity. Having it sit on the market for months like this could potentially drain me, financially. Another option I am considering is a bridge loan, to use for a shorter period of time before the market will likely pick up (just slightly) in the summer. Do you see these loans as being an effective tool?

 A bridge loan is an option to get you through the colder months and see sales go up . . and hopefully interest rates go down.  Message me if you want a lender that might help you if you need one. 

As Jay said, you need to be honest with yourself as to where getting out from under the project at the current conditions will be a financial hit you can't afford.  Interest rates are not coming back to 2021 levels for a while and all the experts expect 2024 to be an even slower real estate market. 

Hate to see people with their first flip wind up underwater but unfortunately you are not alone in that regard.  Cutting your teeth on a smaller budget property that required minimal work would have put less at risk and while the profit would have been less, you would have gained experience in working with the trades and developing a realistic budget and timeline that would have helped on a bigger project like you took on.  I have seen local first-time investors pass on smaller projects and swing for the fences so to speak taking on a project we passed on and they all lost money with the market today.  Properties are not selling like they were and the slowing will continue for a while.

If you can tolerate a loss, sell and move on wiser than you were.  If not, check with local lenders (community banks, etc.) and see if they have a better option than the lenders you are dealing with.  We deal with a local bank that makes the process painless and simple - one phone call gets the entire process started.  The HMLs and larger lenders have criteria you need to fit inside and rates that ensure they make the money they need on a deal.  They have their place but you may find that if you have good credit and a completed property a local lender can be more flexible.

Good luck and make sure you keep the lessons learned close to the heart moving forward.

You can make money doing long distance flips but it is not as easy as the posts you see online would lead you to believe.

Personally, I would try to make it out to the area you are looking at investing in.  Take a week and have an agenda laid out . . .see the areas to focus on and those to avoid.  Plan to meet with some GCs and feel them out to see if there is a fit.

You have done the upfront work and found wholesalers in the area, do the same for tradespeople.  Reach out and let them know what you are looking at doing - you will find some that love flippers for the steady work and others hate them - make sure you find the right one.

See if you can connect with some local REIGs and see what they are finding in terms or areas, market trends and most importantly, who they use for the trades.

Best of luck

You are not seeing an anomaly as we have seen the same thing in our areas.  I think that a lot of wanna-be investors watch some YouTube videos, buy a book and jump in with both feet.  Then they find out that things cost more than expected, they missed items that seasoned investors would not have and things take longer than planned.  We know what could cost us and have professionals that come in and look at that specific area.  The general home inspectors are in 99% of the cases a waste of money as they use template software and often miss the items that are the unexpected costs.  I always love the caveat in the reports that says "Recommend you get an assessment by a professional" . . . hence the reason we have a plumber, a roofer, an HVAC guy and a foundation person we call on projects.

Recently we picked up a duplex that had been under contract and fell through over $2,000 between the buyer and seller.  The seller provided us with the home inspection report and it was 60 pages of fluff.  Torn screen, dripping faucet, burned out light bulbs in the basement . . . . but the inspector had missed the fact that the new furnace was only heating the first floor - the second floor with three bedrooms and a bath had no heat!  He also missed the obvious runs of knob and tube wiring that were hanging loose in the basement.  BY pointing these items out to the seller (an estate sale), we got the property for a discount and knew what we were getting into.

On the flip side much like you, we have gone to look at houses where other buyers (investors) were also present and they missed some key issues or under-estimated the cost to correct.  In two cases the property was listed a few months later for less than what they had paid for it after a demo had gone off the rails.  

Unfortunately advertising get rich quick training is inexpensive and you do not need many takers to make good money . . . I hate to see people that really did not have the money for the course get further behind after finding out that the information they paid for was of limited value.

Quote from @Derek Dombeck:

I like to bring in small self directed IRA or Solo 401k owners. I give them an interest only payment of 6% to 8% plus a percentage of the equity when I sell or refinance. I do this utilizing a participation note and mortgage. The same thing can be accomplished by selling part of the deal as an Option. This way, you are not taking on debt.

Derek, the problem with the scenario you provided is that like all other financing, interest rates are up.  People can get 5% to 6% at the local bank or credit union and even more by shopping around with a larger balance.  We have found that PMLs that were happy with 5% or so are looking for closer to 10% and in some cases more to fund a deal.  Until rates start to come back down, deals that would have been a grand slam 18 months ago are lucky to be a base hit.  Deals are there but every 1% you add to the interest or percentage you give up in equity makes the deals harder to make work.

Not the optimum position to be in on a property . . . . did things change in the project that have your numbers where they are; i.e., did the market drop in terms of ARV or did your reno budget go over estimates? Remember, you make your money when you buy not when you sell so hopefully you are looking back over the entire process from analyzing the purchase to the reno phase to see where your profit went. With that, the interest rates have totally changed the landscape when it comes to selling, buying and renos. HML costs can eat up profit in a heartbeat when you have a delay in getting material or labor is hard to get on the job. More people are opting to stay where they are and fix up their place rather than sell and buy at the higher interest rates which then tightens the trades availability even for us with a history with them.

As far as your current situation, refinancing a non-owner occupied property with the balances you have will be about a break even proposition and that is excluding the $190K you have into the project.  With interest rates staying up there for probably the next 12 months at least, do you see the market turning and the property increasing in value in that period?  If not, I would treat this as a lesson, sell and move on to the next project incorporating the lessons learned on this one.  Flips are about profits (which you do not have) and rentals should be about cash flow and invested capital (which in this case will be far less than what you could make on a CD today).  As the saying goes - "Damned if you do, Damned if you don't" - so with neither option being where you want to be, getting out from the project and learning from it would be our recommendation.

While the cost will be somewhat area dependent, any work under a slab is going to be expensive.  We had a flip on a slab that we wanted to move the washer location and was quoted $7,500 for that alone.  Recently, a friend of ours had to have cast iron pipe replaced here in PA outside of the house and received quotes ranging from $2,550 to $12,000.  As far as your quote, I would get at least 1 or 2 more quotes and see what you find locally as it may be your area or the company you called with the high estimate.  Either way, digging under a slab is not going to be a cheap repair.

We have run into the same issue on a flip or two and barring the seller bringing more money to cover the difference or starting over, you are stuck with the appraisal that the lender received.  We had one that went the same way and the appraiser said it was a flip which drove his number and when we asked about an appeal, we were told it would have to go back to the original appraiser which told us we would lose again (and have to pay for it).  Are you sure that the appraisal is too low?  Was your ARV too high when you started?  This is why the saying "You make money when you buy not when you sell" holds true.  If your ARV was too high or your reno budget too low, you needed to pay less initially.   But as far as where you are now, yuo are pretty much stuck with the appraisal unless the buyer fell in love and will be willing to bring more to the table . . . or you decline the contract and start over (and hope you get a better appraisal)

We had been doing flips but had the opportunity to buy a MF.  Found others and have a portfolio of MF properties plus doing SFR flips

If you are doing this remote which your message seems to indicate you will be, hopefully you have a GC or PM overseeing the project.  If so, then you should use what they use rather than getting creative and creating more work for your on-the-ground team.  Let them get what they need from where they are used to getting it rather than going to places that they are new to and hope that what you wanted is what actually is delivered.  Remote flips are not the easiest without a known team in place . . . . best of luck but listen to your GC / PM and use their local knowledge.