New to Fix & Flip Scene *Seeking Advice*

Brady, welcome.  RE can be a great investment tool when done right.  I've worked as a HM processor, loan officer, HM broker, and I've done some consulting and I am invested myself.  I've helped coordinate 40+ fix n flip deals in the last 3 years.  I've seen the good, the bad, and the ugly in that time.  I've seen the best and the worst of the process and I know where the speed bumps are and I can see trouble coming from a mile away now.

200k is definitely enough to do things the "right" way. With 50k you have to take a shot at financing with an on market property or through wholesale. This can work or it can be a disaster. If you ask me if I have ever seen anyone lose money before buying a project on market, and be under the 75% project cost to ARV ratio, and lose at the exit? Many. many times. I've seen more losers than winners that way. Especially if the GC piece is a 3rd party you met online or on a quick call. I mean, kiss your money goodbye. Like I said, it is not impossible, just improbable. The guys that I know who do buy on market, they run their own subs. No GC. When it's time for Demo, they have a demo comp to call. Floors? They have flooring company to use. Etc... GC's are the absolute black hole of the rehab process. I have met one that is worth anything out of the dozens and dozens I've rubbed elbows with. Bottom line is, it is not their project. They get paid whether they do a good job or bad. What's their motivation once they have the job? They all overplay their labor pool, they all overplay their timelines, there's always overages. They're a blood suck on profit. Not to mention, I've had about three now just run off with money and ghost. So, needless to say, I've taken my lumps and have learned my lesson. Before I share how I feel one should either flip or BRRRR based on my experience, I want to answer your questions:

1. What makes a good fix and flip property? Lots of factors: Market, asset, timeline, economic conditions, interest rates for home buyers.  I think what you mean is, how can you tell if a house is worth a flip.  So, most investors are searching for a project that has a 70% project cost to arv.  That equation is Purchase + Rehab / ARV.  You get that % and if it is over 75% no-go, under they usually say greenl ight.  The Truth, the truth is the guys who do this for a living are usually in the low 60s%, sometimes in the 50s%.
2. How do I accurately estimate ARV (After Repair Value)? If you are asking this question, you need someone to help you.  I am set up in Pittsburgh and I have an expert there who is an agent/wholesaler/investor and resident of the city.  He knows exactly what the RE is worth street by street and the brokerage he works for has software that allows him to run comp analysis on any address.  But, if you want to do it yourself, you need to find sales of the last 6 months within a mile.  Then you filter those down to the same bed/bath count as your target house.  You see how many of those are.  Then you need to see interior pics.  Are these newly finished?  Need some work?  You have to see if you need to add or deduct from the sales price given the condition.  Then you should take the average of the sales and deduct a little bit and that's your ARV.  Note that I rarely see anyone get out at their ARV price.  It's always less.
3. How can I finance my first flip? (Hard money loan vs. private money vs. traditional loan?)How can you?  Well, it depends on the purchase.  an on market purchase with a 30 day close for sure can be financed.  If you're buying an off market property right from the seller who wants a 7 day close, you may need cash for that and then once you purchase you can go to a lender after the fact and get cashed out plus rehab funds.  If you have 200k to work with you'll have options.
4. What’s a good budget buffer percentage for unexpected costs?. This is why you need a thorough inspection.  You'd need to coordinate a walkthrough prior to purchase and you'd want your agent there, a plumber, an electrician, you'd want to know what the cost of sheet rock and paint is per square footage so you can get that number.  Need to know what rugs and LVP costs per square footage, have the roof looked it.  I'm lucky, I have one guy who can do all of it for me.  And even still, when you get behind a wall or knock down a ceiling you do find stuff, but without a good inspection you'll find so much more.  Most do 5% - 10% of the budget as a contingency.
5. What tools or calculators do you recommend for estimating renovation costs and ROI? I do not use any of these but there's many out there.  For me it is all about how and when I get into a property.  If I am buying in an advantage situation and am purchasing a house at a 30% - 50% discount because I'm cash and I am buying in secondary markets: Direct from Seller, Auctions, Foreclosures.  I know if I am in a flip and my project cost is 56% of ARV, I know I am fine.  I may make 20k if the market is bad and I have to reduce and wait for a sale, or I may make 60k and be out in weeks.  Either or I'm winning.  It's a matter of how much.  When you give yourself a giant safety net for the exit, you know you'll win it's just a matter of how much.  Those softwares are more for people who are trying to navigate the 70% - 75% project cost properties and their margins are very thin and it's important to know every cost down to the penny.  You can and will lose like that, I'd rather not.  Just my opinion.
6. How do I find reliable contractors and vet them properly?. You've just asked me the secret to the universe.  I've been burned by 9 contractors and counting.  They all sound great on the phone.  They all have referrals.  They all have pics of past projects.  You really do not know until you get in bed with them.  This is what I have learned:  I have a better shot with a young guy with big dreams and not much work history than I do with some GC who has been around for 20 years and is wayyyyyy over priced, and is already set in all his bad habits.  The Older GC is gonna work his way, like it or not.  The younger guy will be eager to work your way.  One guy will want to prove himself, the other guy is just worried about his own pockets.  Here is what GCs do, the scummy ones - and the scummy ones outnumber the good ones 100 - 1.  Scummy GCs operate a ponzi scheme.  They keep starting new projects, taking on new deposit money but the money is always going to older projects that have been bankrupt for a while.  So, you'll throw 20k to some GC to get started on your house and he may use 5k to get the work going and make it look good, then he's for sure taking a piece of his end, maybe 5k - 10k, and then the rest is going into old projects where people are breaking their balls non stop and calling them like crazy.  I found this out when I had 13 projects going at once in Pittsburgh and there was about 1.5 million in rehab work and at least 300k -400k was misused.  You are better off running the subs yourself.  Subs that do one trade and do it very well.  You just need to know the order of operations.  Demo, mechanicals - roof - exterior, drywall, kitchen/bath remodel, paint - molding - baseboards, floors/rugs, final finishes and staging.
7. What are common renovation mistakes new flippers make? Besides hiring a GC that milks the project of all its money?  Really, it's just that they do not know what they do not know and that is dangerous in this profession.  They do not know how to manage their jobs and do not have the labor connections.  You will go through growing pains and maybe take some losses until you have the rehab team, or you may never get the rehab team right.
8. What renovations provide the highest ROI? Buyers like Kitchens and bathrooms and open floor plans.
9. How do I avoid over-improving a property? Understand your comps.  What finishes did your comps use?  If they used high end, then you will need to as well.  If they used rental grade, then you can too.  A lot of analysis goes into this.
10. What permits will I typically need, and how long do they take? May need several, may need none.  Depends.  Time also depends on market.  I hear FLA can take 60 - 90 days for permits.  Other markets you get them the same day.  As far as the types, you have a general work permit.  This is what is needed most of the times.  Then you have your mechanical permits.  If you are rehabbing the plumbing, electrical, or HVAC then they each have their own permits that need to be pulled by a licensed pro.  HOWEVER, any work that you do yourself then you do not need any permits.
11. What are the biggest legal pitfalls for new flippers? Legal pitfalls?  No real legal pitfalls, but you need to know and understand how RE profits get taxed.
12. Should I form an LLC for flipping? YES
13. Do I need special insurance during the flip process? You'll get a builders risk insurance policy.
14. What’s the best way to price and market a flip? You either need to learn a market like the back of your hand (this is why ppl like to work in their home market) or have an expert to guide you.
15. Should I use a real estate agent or sell by owner (FSBO)?  I'd say agent, cause if you feed this guy sales, he will help you find projects.  That's what you want.
16. What kind of timeline should I expect from purchase to resale? 6 - 12 months.
17. How do I minimize holding costs and maximize speed? Your Rehab team needs to be efficient, work long hours, get good prices on materials and be motivated to get the job done in 90 days.  a House that needs everything should take no longer than 90 - 100 days to complete.  These jokesters out here take double that.
18. What tax implications should I be aware of when flipping homes? (We plan on 1031 Exchange the profits for down payments on LTRs) Learn about the 1031.  It is not that simple.  Lots of red tape and guidelines.  Every new flipper knows of the 1031 and says that is their plan, but they make it hard to do on purpose.  If you can do it, great.  But the project the money goes into isn't really up to you.  As fas as taxes, if you open an LLC and file for S-Corp status with the IRS you can avoid the self-employment tax of about 15%.  You can ask any accountant about it.  If you do it out of a straright LLC you'll pay federal tax (whatever your bracket is), your state tax(whatever that is), and then that extra 15% self-employment tax.  You add that all up and your at 38% - 40% tax per flip.  Through an S-Corp you'd be closer to 25%.

In my opinion, after my experience in this industry and then also being privy to lots of the info on the seminar markets.  This is how you do this right:

You’re moving cash around, sometimes without 100% vetting, but purchases will be under market. I'm talking auctions, foreclosures, short-sales, direct from sellers in dire need. This is the pond that the big players fish in. Cash deals. Quick closes. Money being sunk into undervalued RE. The barrier to entry is the knowledge. Someone needs to know the market street by street. I mean school districts, parking, downtown, where the parks are, the restaurants and shops, colleges, even the good sections of the bad zip codes. Your end goal is to pick up an asset for 50% - 75% of it's current as-is value. Once the deed is in your name, you do a full inspection of the property to understand which of the 4 exits you plan on doing:

1) You don't lift a finger and add 20% - 25% markup and sell it to another investor who will take it all the way. You make an outstanding APR on a 3 - 5 month capital investment.

2) You decide to to a very light rehab, freshen it up, patch up any glaring issues, and you list it on the MLS for someone to buy as a cash flowing rental. Your return on cash will be 25% - 50% in 6 months, nearly a 100% APR. If it doesn't sell you can refi out FOR JUST YOUR MONEY BACK, nothing extra and keep it as a cash flowing asset you have nothing into.

3) You wanna flip it, so you can take the property to a lender who will put you in a delayed purchase Bridge loan and they will give you 80% - 90% of the purchase back, plus supply you with the rehab money to fix the house. You gain your liquidity back, but you'll carry the note for 6 - 8 months probably, but the return here can be substantial b/c you were in under market to begin with. This is the "going for it step". If you go for it, the conditions need to be right. That means mortgage rates need to be on a descending trend, the market the house is in has to be active, and the asset itself needs to be in a good school district and have a driveway and not be too far from downtown. A lot of the intangibles have to make sense. But when this step is pulled off from the bottom rung, the payday is huge. Last year, my partner in Pittsburgh bought a house at auction for 35k. He sold it untouched to an investor for 120k. Incredible school district, but no parking. So my partner opted for making a quick 85k and call it a day, but the buyer's lender did an appraisal and the ARV was 330k, but it needed 110k in work. So a 145k project cost with an ARV of 330k. You can't miss that net. You can give it away at 250k and still do very well. These are the situations you will find yourself in buying this way. 44% project cost. The investors in that crowded pound are tickled pink if they snag a 75% project.

4) You know you want to keep this in your portfolio from get go, you go to the lender and do step 3 but instead of sell you do a DSCR refi but only take your money back. So in example above you would find a renter for like 2700 - 3000 per month, shouldn't be hard in that school district. You go to your Lender and you do a 45% leverage DSCR, which should have a great rate to it. Your monthly would be 1100 - 1300, maybe. You're in for 0 and collecting 1500/month. Now just add 9 more!

RE has a way of making people think the house, the market, and the fact that RE is a sound investment does all the work.  Flipping is a short-term investment vehicle.  The short-term investment vehicles of any market are the riskiest.  It's like day trading.  You wanna get in and get out in a very short amount of time and your are investing upon your speculation of the house, the market, and the buyer pool.  To get in and out as fast as possible is hard, and risky

The exit of a project after 8 months can be a disaster, the exit after 8 years can be a windfall. That's the difference between flipping and the BRRRR. RE does have a appreciative relationship with time, flipping negates that advantageous position and sometimes time works against you.