All Forum Posts by: Kevin Keene

@Brett Russell,

Thank you for your reply! I completely understand your statement on the psychology of manipulating the 70% rule math. I will keep the math the way it is meant to be and not fall into that trap. I appreciate the recalibration!

As for Zestimates, I understand they are not law. I was just using them as a tool until I find out what real tool I should be using. So, other than MLS data on sold properties, is there anything I can use as Joe Nobody to be able to better understand this process?

Also, would you have any other comments on my procedure? Am I doing anything right? Barring the math, is there any other step I can improve to learn more about this process? Thanks again for your reply!

-Kevin

Hello, again!  I have been saving my questions for weekends, so that's why you are seeing more than one post from me today.  Sorry if I am flooding!  I am trying to perform good research and not to ask questions that have already been answered.

Anyway, if you have read my intro post, then you know I am not an agent or an investor... yet :)  I am trying to learn as much as I can and execute one good flip within the next couple of years to learn the process.  In the meantime, I have been reading a ton of BP forums and blog posts.  However, I have also been performing the following actions.  I was wondering if someone with experience could tell me if I am doing anything right or what I can do to improve my learning.

First, I have been looking at residential foreclosures on Zillow and Redfin in random cities and neighborhoods.  Honestly, I just pick a state and look at a cluster of dots, then zoom in and review a property's, description, pictures, tax history, and sale history.

Then, I have been using recently sold property data from Zillow and MLS (whatever meager access I have to it) to figure comps and ARV in the local area around my selected foreclosure. Oh, I've been comparing my concluded ARV to the "Zestimate" to see if I am close... not that I know what I am doing...

After I determine my ARV, I start flat out guessing my repair costs. I have had a contractor perform work in my home before and I watch a ton of rehab shows (I know... I know...). So, I estimate kitchen guts at $20K, bathroom guts at $15K, and miscellaneous at $10K. Basically, I start with the $10K. If the pictures make the kitchen or bathroom look bad, then I add those costs. Then, after I get my repair total, I add 50% for fudge factors.

Then, I estimate my holding costs at 6 months.  I use tax data for property taxes.  I use the foreclosure data to estimate mortgage payments and interest 15%.  Then, I add $500 per month for power, gas, and insurance.

Then, I plug this into the 70% rule to reverse determine my ARV to see if it could be a good deal. For example:

Foreclosure cost is $150K.  Repair cost is $30K for a kitchen gut and other miscellaneous.  Add $15K to repair for fudge, and repairs are a total of $45K.  Monthly holding costs will be $800 for the loan and $500 for the utilities.  That is $7800 total over 6 months.

Now, if I learned the 70% rule well enough, the holding costs shouldn't be greater than one-third of the 30%. I will account for this in a second. The 70% rule focuses on ARV and repair costs. The math is as follows: (ARV * .7) - Repair = max buy-it line.

Therefore, ARV = (max + repair) / .7 => ARV = (150K + 45K) / .7 => ARV = $278.5K

I have to have ARV of $278.5K or greater for this to be a good deal. Now, to check my holding costs, 30% or $278.5K is $83,500. One-third of 83,500 is $27,555. Subtracting my estimated holding costs of $7800 from that leaves nearly $20K in flexible repair costs and about $55K in profit.

My question to all of you is, am I doing anything wrong?  I don't want to learn bad habits early, so what can I do to improve my learning process?  Please keep in mind that I am nowhere near ready to buy a property yet... I am just trying to learn the language and get the eye for a deal.  Thanks!

-Kevin

Hello, everyone!

I have been reading a lot on comps lately.  (Thanks to Steve Babiak's post "Finding Comps - FAQ") but I have come up with a question.  Which talent would you rather have: estimating comps or estimating repair costs?

Let's start with what I know. I know all talents associated with flipping will come with experience (which I have none). I know that comps can be reasonably determined from MLS related website information, recently sold properties with comparable statistics, and assistance from an agent or broker. I know that repair value (barring the inevitable unknowns) can be influenced by condition of the home and property, area similarities (meaning, if your comps have granite counters, then your flip needs to have granite counters), and budget.

But, what do I really need to know? For comps, the MLS website seems to have the information I need even without being an agent and having the "full" access. Zillow has been a great help, too. Redfin, not so much. Maybe I haven't figured out the magic touch to make their search function work. In the end, if you have a good broker friend, you can get good comp data from them. For repair value, a good contracting team will be there to tell you accurate costs, and you can reasonably infer your budget based on purchase price and area market value. So, in the case of comps and repairs, I would say "who" you know is better than "what" you know. However, repairs will directly affect my bottom line. I assume there is a direct correlation between length of repairs and cost of repairs. Furthermore, the longer repairs take, the more expensive your holding costs.

Therefore, my conclusion is that I would rather be good at estimating repair costs than estimating comps and ARV. I would rather be able to see the pool motor that needs fixing or the foundation crack or the black mold in the ceiling before I consider buying the property. Ugh, but the other side of my brain says I need to estimate ARV before I buy to see if there is any profit to be made... GAH! What would you say?

-Kevin

Hey everyone!  Thanks for making me feel welcome!  I am very honored for your replies and I will take anything I learn here to heart.  If there is one thing the military has taught me, it's not what you know, but who.  (and every now and then, the what you know becomes important, too!)

Thanks again!  I will be starting more threads as I have more questions.  Don't worry, though.  I promise to read the other threads to try to not double-post.  Thanks for the connect invites, too.  And, @Jim Lally, let me know if you start a networking meeting :)

-Kevin

Hello, everyone!  My name is Kevin and I am very interested in flipping houses.

To start, I should probably say I am in the military and not really in the position to start flipping immediately, but my wife and I are very interested in making it our career when I retire in a few years.  We want to flip one or two houses within the next 5 years (not at the same time) as a "dry run" to see how well it works for us.  I have always been interested in owning property.  We currently own two houses and I was looking at buying rental property a few years ago, but then I deployed, so we never put that into action.

I have been reading a lot on this site and have taken the 70% rule to heart, among other tips and rules. I am very good at spreadsheets and I have already begun making some, using math to best guess whether or not a property would be worth investing. I use websites to estimate ARV based on recent sales, but I am still learning comps. I'm not looking at buying now, but I did want to start wrapping my mind around the ins and outs of buying, fixing, and selling in short durations.

I know market influence on income is a difficult way to make a living, so my goal is to make a bankroll to be able to fund my first flip with straight cash.  That way, I won't be using any of my paycheck to rehab, taking some of the stress off my shoulders.  I am aware that even with a contractor team, unexpected costs, and holding costs associated with it, will add up.

After reading this site more and more, I am also learning about wholesaling and Tax Deed Sales.  My mother tried to quit deed her house to me, but after a lot of research on the process and learning her motives, I avoided that like the plague.  The good news is that I learned a lot about that, too.  Anyway, wholesaling and foreclosures seem to be up my alley.  That tax deed stuff seems like more of a headache than I am willing to put in to this career, but still, I am sure there are some gems out there for people interested in that.  We also participate in storage auctions, but that's for another forum :)

Whew, I'm going on pretty long... sorry!

So, my wife and I have decided to look in to getting real estate sales licenses.  I have looked in to classes, but we ran into a snag.  There are different rules for different states, classes, hours, etc. and I don't know in what state I will retire.  Is any one state easier than another?  Can I take classes for one state and get licensed (before I retire) and then transfer that to another state?  I also know that being a real estate agent (I have learned the difference between REA and Realtor here!) instead of being an investor creates different rules of ethical disclosure to potential buyers, and I have a pre-legal degree, too.  We were thinking maybe I could go to law school and my wife become the real estate agent.

Regardless, I signed up for this site to network and learn more.  When I talk, I want to know the appropriate lingo of the business so I am clearly stating my desires to contractors and real estate investors/agents.  I want to make sure I know what to look for and how to get it.  That's really why I am here.

Please don't feel like I am wasting your time just because I plan on taking it very slow.  My wife and I are very serious about doing this type of work and I love learning everything I can about any topic I pursue.  Thank you for reading all of this and I look forward to talking with all of you!

-Kevin