I started my flipping journey buying a property for $225k, then move up to $250k, then $258k, $340k, $353k, $400k, $515k, etc and rehabs also went up from $60k all the way to $260k. I didn't feel comfortable buying houses in not too nice areas so I focused my search in more popular areas. The more popular, the more difficult to find a good deal. So I started moving up in price since the more expensive you go, the less competition you have. Also I started doing additions and new constructions in order to make the numbers work since I couldn't find any good deals. Few months later I realized I made a HUGE mistake going bigger and bigger. I was kind of thinking as long as I make more than 20k on a deal I'm good, regardless on the size of the deal. HUGEEEE mistake. I didn't plan for going over budget or taking longer than expected. When you have between $2k and $5k on holding costs on each property and you have 6 properties at the same time, that's the quickest way to drain your bank account. $25,000 per month on holding costs is very dangerous if your projects take longer than expected. Going over budget or taking longer than expected could result on running out of money, make no profits on the deal, or lose money on the deal. If you don't have the capability to absorb those kind of HUGE monthly payments in case something goes wrong, my recommendation is to stay on smaller deals. They are a lot faster, cheaper, and an extra month will cost you less than a $1000 per property. For example if you have 2 properties, it is not the same have to make $1600k on monthly payments, than $10k on monthly payments. If you thought you were making $20k and your project takes 2 months longer than expected, you made no money, versus making $16,800 on a smaller deal.
It is up to you how you want to run your business. But be aware that playing smaller yield higher returns, faster returns, and it is a lot safer. For people from Los Angeles, San Francisco, and other expensive areas who think they don't have any other choice. All I can say is that if you do have to go big, because you think you don't have any other option, plan for change orders, plan for longer closing, losing a buyer, delays do to weather and things like that. As long as you have every contingency on your budget you should be good. If you don't use the money, you'll pay interests on money you didn't use, which sucks, but at least you didn't lose any money. But if you do need the money and don't have it, you are going to pay a higher price for that. You will lose money, and you could lose the property as well. It is better to have it and don't needed, than to need it and don't have it. Whatever you decide is better for your business, always take SAFETY in consideration. Don't think everything is going to go as planned because it never does. "Plan for the worst, hope for the best." Good luck with everything. I hope this post can help you somehow.
