All Forum Posts by: Will Barnard

Instead of attempting to get some arbitrary guess on your costs, wouldn't it be more valuable to you to get a more precise figure? This will obviously take more effort on your part but in the long run, the exercise will be a valuable lesson for future calculations. Learning how to properly evaluate a rehab budget is imperative to your success and there are many books and posts on this topic of how to do it - I have posted many on this topic in the past.

Don't forget on your list windows/doors, trims (baseboards and door casings), waterproofing/protecting floor of garage, potential need to frame/or upgrade farming of exterior walls of garage (many garages have stem walls) and the flooring is often sloped to garage door so leveling the floor may be necessary.

Communication with your contractor on design is only one aspect of the communication. The suggestions above are good on the design aspect of communication. The other important items are contract terms (including draw schedule, scope of work and timelines), consistent follow up on progress, & paperwork (estimates and invoices) for change orders - they will undoubtedly come up as no construction project goes precisely as planned or has zero hidden or missed task items that will need to be completed.

Time is your enemy on all flip projects so hiring the right contractor who can deliver the services in an efficient manner will often be more beneficial to the flipper than a lower priced contractor and/or a poorer quality contractor. The flipper needs to know that construction has 3 aspects and a good contractor will deliver 2 of the 3. Quality, price, and time. So if you want it cheap and fast, expect quality to suffer. If you want it fast with quality, expect to pay for that. A contractor who promises all 3 (cheap, good quality and fast) will either be out of business or is simply blowing smoke. You can't stay in business very long providing excellent quality, quick turnaround times and lowest prices.

My first flip was funded entirely by private money lenders (people I knew). Funding with hard money for your first time will cost you your right arm and first born. It will be an extremely risky proposition and likely end up in failure. Your first is already risky enough since you lack experience, combine that with 100% funding and the risk is through the roof. That said, it can be done and done successfully if you plan in advance, build your team (contractors, subs, back ups, lenders, credit with suppliers, escrow/title, real estate attorney, mentor, etc.) get educated on finding (marketing) for deals, rehab costs, locations, market data (like crime rates, school ratings, population growth, job growth, etc), specific market insights like what is most popular and sells for the most in your area, etc

Quote from @Tina L King:

@Evan Polaski Thank you for this knowledge, I am definitely looking to shadow someone here in Houston, there's so much I want to learn about before I just jump in. I do have a question about being a first-time investor, would it be better to go in as a traditional buyer, live on property while fixing? because I'm thinking no one can really tell you when to sell your property, since it would be difficult to get a loan from a private/hard lender first off. Is there a strategy for that?

I know many people who started flipping in this manner, in fact, it was my idea to get myself started this way. For me, the problem was, I did not know what I know today and the only loan I thought was available to me was from a bank. Being self employed then too, I would not qualify so I never started that way (and I was very young (like 23). If you have excellent credit and can qualify for a bank loan mortgage, then buying as an owner occupant and working on it as you go can be a good way to get started. Its tough living in a construction zone but it can also offer you both an investment, education and place to live for the time it takes to complete the renovations.

I actually started by using private money (people I knew who had money) and used them as lending partners. My first flip was funded 99.9% with private money. That said, it was a risky loan and risky on my part being responsible for that loan. So having a plan, ability to do some things yourself, and building a team prior to starting is helpful in reducing some of that risk. Buying correctly is another large factor (in any RE transaction).

Of the comments above from Evan, while it may appear to be scary and cautionary (as it should), don't let it discourage you either. His advice was solid and it is important to recognize what all it takes to succeed. Flipping is not easy (it is also not passive) and wholesaling is also not easy. In fact, I would argue that in some forms, it is more difficult since you have to find a good deal (no easy task) that has enough profit for the flipper and then room for you as the wholesaler. Most are taught to start out wholesaling then move into flipping. I think the opposite is more achievable. I learned a ton on my first few flipps (and had the advantages of already invested in rentals and land development first.

Check with your bank and see what you qualify for and keep in mind you will need to fund the renovations so those funds will not be coming from the traditionally bank lender but rather from other sources. Credit accounts, private lenders, money partners, your own savings (save up prior to your purchase), etc. Once you know what funds you have and what you need, you can then start shopping for that first flip investment.

@Bob Stevens Agreed, I too would much rather be all in at $250k, unfortunately here in Southern CA, that won't buy you a garage! $1,250,000 all in is often difficult these days!

Very true, you make your money when you buy and that formula is dependent upon your search abilities, how big of a net you cast to find opportunities, your negotiating skills, your ability to identify great locations (often near good schools), and your ability to transform the property. All these skill sets are important and necessary for successful flipping projects.

Quote from @Bob Stevens:

So let me get some feedback. If you're all in 150k and sell for 200k, great % right? So, if all in 500k and sell for 600k, still good profit right, much more risk IMO. So, who cares about the school? Just because you and I will not live there, others do. So, I'm all about Price price price, to a degree.

All the best to everyone 

You appear to be bent on proving most wrong here. Sure it is about price, price price. What you pay for it, how much you spend on it and how much you get for it. But you appear to miss the fact that the third price in that formula is affected by location which includes school ratings. I have flipped a lot of homes and have had higher returns consistently when the location was better, particularly when the location is inside a specific highly rated school. Young families pay close attention to schools when deciding on a home purchase. That is a fact.

So to answer the OG poster's question, schools (and all around location) should play a roll in your decision of purchase and how much to pay for it. One house to another, with all else being equal, the rehab could be exactly the same and the purchase price as well as the exit value could be largely impacted by location/school ratings of that location.

Quote from @Ned Carey:

     Something like a $1,000 bonus for every 5,000 posts? 

     Two tickets to Cancun for every 20,000 posts?

I agree 100% with @Nathan Gesner but only for members who joined before 2010

I second this statement!! Agree 1000%

Quote from @Cameron Fowler:

When looking into getting my first flip or rehab house there are all kinds of work that I am curious of and other people's experience. I would love to hear some stories or areas that were challenges for those who rehab or flip houses. I am in Indianapolis and there is a lot of great opportunities for flips but I want to know what challenges to be on the look out for. 

 Aside from some answers below, location is key. Avoid properties on main streets (traffic noise, avoid homes near freeways (smog/traffic noise), avoid homes without garages if most other homes have garages, avoid being in airport flight paths, avoid over building or over rehabbing for the area comps, know how to properly and accurately estimate ARv and rehab costs, and have money lined up in advance. Some will say find the deal and the money will follow. I disagree. Having lenders or partners upfront places you in a better and more confident negotiating position and in the event you find a deal and can't find the money, now you lost the deal and have to back out damaging your reputation as a closer.

Why not offer your bank to do a full appraisal on the property that you pay for? Show the bank and the appraiser your itemized list of improvements with costs to help show the new value. NOw that it is also a multi family, perhaps the income approach will also better the value after analysis by the appraiser.

That is a very general question and each area has its own market conditions so what works well in one area may not in another. The more strategies you use to locate deals the better your chances to finding deals. Casting a large net by utilizing wholesalers, MLS, direct relationships with agents to get deals BEFORE they hit the MLS, driving for dollars/door knocking, direct mail, etc. are all great avenues if done correctly.

Knowing how to calculate the ARV and rehab costs is also essential to identifying a good deal and that goes with any area. Fail at that and you are setting yourself up to lose money.

Funding: This is also an essential part of the puzzle. I personally use private investors to fund all my flip deals and bank financing for commercial buy and hold deals. Private money (not hard money - there is a huge difference) is built with time, experience and connections. It does not happen overnight and having a track record is especially helpful in scaling this. As the borrower, being responsible with other people's money is also extremely important.