@Brandon Foken @J Martin Really interesting thread here.
I am definitely interested in looking at higher end flips in the Greater Bay Area, but see below for criteria, I'm looking for a min of 15% net with conservative #s...since the higher price points, bring with them higher risk.
I have been looking at alot of higher end flips, in the past 2 months. Partly, because we do have a few private money lenders that prefer the bigger deals and partly because it seems like the competition is only fierce vs. cutthroat. lol
I agree with what @Brian Burke said, since he has probably forgotten more than I know. :-) BTW: Thanks for you advice on the Napa contractors, we are back on track. Almost on the market!
Most of the time in the higher price points, you are not looking at identical tract homes that have simple, clean comps. It's very easy to be "off" on ARV. What I have been doing when possible is to network with a couple of the active Realtors that farm the area. They generally know what "features" are most desirable. In some areas, sq ft is king. In others, it's a 4-car garage, wine cellar, guest house, etc. In the hills, a steeper driveway can mean $200K+ in price reduction.
As another filter/check, I will look at the avg $/sf of the neighborhood, and look for the recent outlyers to find out why they are much lower or higher. I look at which properties sold slowly (and stale listings) vs. what sold quickly. Then, I'll compare avg $/sf to my conservative ARV to see if I get a similar number.
A local flipper that I network with specializes in high-end. His strategy is to completely remodel to slightly exceed the most recent and highest comp in the area possible. He basically, clones it, from architectural style, to features, sf, bed/ba count, etc. He has had great success by creating his own comp. This works especially well, if the comp sold quickly with multiple offers over asking price. You know that there is a demand for your product.
In addition to using a conservative ARV AND increasing estimated hold time, we budget for professional staging, and go from a min NET profit of around 10%+ on medium flips to around 15%+ for the larger flips. Basically, every variable in the calculation is conservative, creating multiple buffers.
All of the above means that we've walked away from many deals, so far but we haven't lost money either. Can't argue with Warren Buffet's Rule #1, "Don't Lose Money".
We are writing an offer on a $1.6M purchase, $850K construction, $550K in other costs, with a conservative ARV of $3.75M. Estimated hold time is 12 months, though we sure plan to shorten that. Net profit should be around $750K (20%).
