All Forum Posts by: William Harvey

We generally shoot for a minimum of $40k net profit or 10% profit based on the ARV, whichever is highest. We are very conservative on the ARV and to date we have only had a few flips come in below our target profit range. 70% ARV minus reno costs is a terrible strategy and will lead to not being competitive and losing out on offers. It is also very arbitrary and not logic-based. This is all my opinion.

Our strategy is to be EXTREMELY confident/conservative about the ARV and then shoot for $40k or 10% profit margin. If you're offering 70% minus reno, the price will likely end up being around 50% of ARV or possibly less. If we offered that in our market, sellers would tell us to get bent and never return our call.

@Patricia Cote I would really dig into WHY they are looking to walk away from it. We've gotten 2-3 leads over the last few years where it is a similar scenario and for all of them, once we dug into things we realized there were issues. Usually, the issue was that the seller got in over their heads, paid too much, underestimated the rehab, or a combination of things. 

I would put on your skeptic/detective hat and try to find out if there is something they know that isn't being relayed to you on the surface of things. If it passes the smell test and all makes sense, then move forward. But if anything seems weird, I would pass on it. 

@Joy DeLiddo We haven't seen much of an increase in these costs. For us it seemed like the struggle with rehab-related things was in late 2021 with the supply chain issues. For now, we have been laser-focused on nailing ARV's as we are in a weird market currently (as I'm sure you're aware!)

There are so many services today to help with forming a LLC and most of the time you don't even need them and can do it yourself. As far as an attorney goes for the transaction, if you just find a good title company they should be able to help on any transactions. We have a relationship with a title co and they will answer any legal questions we might have and do a great job. I'd recommend finding a good title company and forming a relationship with them.

@Evin Lynch I agree completely with @Mohammed Rahman. It will be difficult to find a GC that will do this. We typically engage our contractor to come walk the property with us once we have it under contract so we don't waste anyone's time (including our own). 

I think being conservative and leaning towards the high end of things when doing your estimates will be the solution here. Once you feel comfortable estimating these figures on your own, it'll be a piece of cake and you won't need to rely on a contractor anyways. 

@Brad Cook I agree with @Eliott Elias here. Takes time to figure out what you enjoy and what you don't. I quickly learned that I loathe managing tenants and am way better suited in deals where I am not responsible for that. For instance, I have a partner and him and I have been buying STR's and hospitality properties. My focus is solely on the financing side of things. My role is to work with lenders, banks, investors, etc and come up with the money to purchase the property and execute our game plan. His role is to deal with all property related things such as outfitting the rooms, dealing with our property manager, etc. I am completely disconnected from all aspects of managing the property, which is a beautiful thing! I also flip properties because there is no managing tenants in that scenario either (although managing contractors isn't much better!)

To touch on your comment about taxes, while this is a good idea in theory, I think there are too many variables at play to make this a viable long-term strategy. For instance, if you did this over the last year and went to sell in the current market, you probably wouldn't do too well. I think it is best to decide ahead of time whether you are going to flip the property, or turn it into a rental. If this is your plan but you have the ability to hold the property longer in case you have to, then I don't see anything wrong with this. But to rely on this strategy alone seems like it could get you into trouble. 

Completely agree with @Eliott Elias about the ice berg. Anything is a deal at the right price. The best flip I've done based on profit percentage was in a rural area with not many people living in the area. Conversely, one of the worst deals I've done was in a very populated area. We bought the rural property very well, and overpaid for the latter property. I would just recommend (especially in this market) being ultra conservative when looking at rural properties. Better to make a lowball offer and not get it than over pay and get stuck with a bad deal. 

Former loan officer here....Technically you are supposed to occupy within 60 days of purchasing the property, but it sounds like there are extenuating circumstances. Not sure how that would hold up if you ever got in trouble for it, but keep in mind there are no FHA police that are going to randomly show up at the property to make sure you are living there, so I don't think it is a huge deal to knock out the work in that room and then move in. Also, you mentioned "intent." Intent goes a long way in lending and if you truly intended to move in and there were unforeseen circumstances or anything beyond your control, it should pass the smell test and allow you to break the rule for the time being until the property is livable.

I completely agree with @Andrew Bang. I recommend doing some research and finding out "ballpark" estimates as to what each aspect of the flip will cost. Make sure to be on the conservative side when doing this. Also, as he suggested, if you go to meetups or some other event to find more experienced people, they should be able to help with this. 

We are doing something similar to @Cody Neumann where we are being super conservative with the ARV and are using an ARV that is a "no brainer" that the property would sell for. For instance we just bought a townhouse that has comps going in the $350k range, but we used $300k as our ARV. I'd be surprised if the house sells as low as $300k, but we are covered just in case!