All Forum Posts by: Bill Hinshaw

Purchase price = 125k

Renovations = 105k

ARV = 305k

Leaves 75k for profit, holding costs, closing costs, and agents fees. What are those numbers? I'm guessing your profit would be 50k - holding costs (I deducted 8% of ARV for agents fees and closing). Take some time and figure out the rest of your numbers.

Also note a 105k renovation is substantial, and will likely take you close to 6 months if this is your first time. It shouldn't take you that long, but it will. I would factor at least 6 months into your holding costs, probably 8.

Why does it need 105k renovation for a 310k ARV house? Do you believe that number is accurate? What is the square footage? Things tend to go over budget... I haven't flipped one yet where I came in under. You have no room to be over budget here.

You are close to having a decent flip here, but your numbers are a little thin in my opinion. I would definitely question that 105k rehab and figure out what my other expenses will be.

By far my favorite floor is solid oak sanded and finished on site. There is nothing on the market that gives the same look. I can get it here for roughly $5.50 installed. I agree with others who recommend engineered for the durability.

@Hai Loc I agree, BUT...

For the first 7 years of a conventional 30 yr mortgage, even at super low interest rates, we typically build only a small amount of equity over that time. With this property every dime he pays on the mortgage goes directly to equity.

I would focus less on the price to rent ratio and focus more on the annualized return after 7 years. Would you invest 25k to get back 96k after 7 years (71k equity plus the original 25k you put in)? And that's ignoring cash flow, which we expect to be pretty small. I would certainly consider it.

It could be an ok deal. I would see if you can get him down to $600 monthly payment at 0% interest with a balloon payment after 7 yrs. That puts you ahead of the 50% rule by $100 ($1400 rent - 700 expenses - $600 mortgage). That isn't much, but the 50% rule is a pretty conservative rule. 

I would also see if I could get him down more on the purchase price. What is the true value of the property? If it sat for a year at 235k, it isn't worth 235k. You really need to be solid on what it is worth.

Your $2100 operating expense seems really low. You should already know what the taxes and insurance will be. In my market, those 2 things are going to be more than $2100 by themselves. What are they for you? What do want to budget annually for repairs?

Building equity interest free each month - I like that idea.

We had added some sod on a recent flip. It was a low lying area, and the sod we added created a drainage issue that we didn't account for. The sod basically created a 2 inch lip that would hold water in precisely the wrong area. The day after we closed, massive rainfall resulted in standing water in the garage. Normally not a big deal, but they had just moved in and had boxes in the garage. We were out there that day adding permanent drains to bleed the water away from the area.

I hate the experience @Dené Sellers is describing. I added my experience to show how easy it is to make a mistake, even when you want to deliver quality.

Is it painted? For scraping popcorn, moistening the surface is the key to getting it to scrape off easily, and that might help here, as well. You might also try to sand it down. Doesn't have to be perfect, just good enough to knock those rough edges off. Either way, scraping or sanding, you're probably going to want to float it before you apply any new texture.

One thing I did starting out - I told every agent I knew I would use them on the sell side if they could bring me a house that worked. I explained ARV and my criteria to them as best as I could. I got my first 3 houses that way. The negative of this is you will have to filter through quite a few emails of houses that won't work, and both parties will get frustrated over time. But it does give incentive to multiple parties to try and help you get started.

@Greg H.

Thanks for pointing that out. I would agree with your assumption about it not being required by code if it isn't on both forms. I will definitely keep that in mind.

The seller's disclosure can be tricky. In Texas, I have to disclose to the buyer that I've had an inspection. The buyer may ask to see it, which can be problematic since flip houses are typically distressed before we get our hands on them. Anyway, I haven't had a problem yet due to disclosing a prior inspection, but it is something to be aware of. I would still agree with others who have recommended inspections starting out. 

Here are some questions I would ask if I were in your shoes. I am assuming you mean questions that will build your confidence in moving forward, and not questions around the structuring of the deal.

• How many flips have you completed? Ever lost money on a flip? If so, what did you learn?
• What are your profit targets? How do you decide what houses to do? How often do you hit your profit target?
• Do you target specific markets? Cosmetic rehabs or full gut jobs?
• Do you create a SOW, budget, and project timeline at the beginning of each project?
• How close do you typically come to hitting your budget and timeline?
• Do you work with a GC or act as the GC on your projects? Do you have a solid list of subs for your projects?
• Do you pull permits? Carry liability? Carry workers comp?

I don't agree that partnerships are inherently bad, but they are difficult. I also agree with @Jerry Miller that like minded values are important. Disagreements will be inevitable, so knowing how both you and your partner deal with conflict will be important. Clearly defining roles and expectations up front will help.

I'm sure there's a lot more. Hope this helps.