Does anyone here flip houses?

[California]

Worked for me. I retired at 54.

There's a lot of wisdom in the posts above. Buy the cosmetic fixer and then when you have it up to average, the increase in value is a cushion against a falling market.

A couple of additional observations:

Don't be afraid where more extensive renovation is needed, just don't fix it beyond average for the neighborhood.

You make all the money BEFORE you buy. The essence of making money in fix-up real estate is to keep looking until you find the deal that has $x difference between what it sells for now, and what you can get for it after you have brought up to average in that neighborhood. Get several agents to do your searching for you.

As an extreme example (a little beyond anything I got into) I often said the smell of rancid dog-piss throughout a vacant house is worth $50,000. No sane tenant will move in now and the ones who left were scum who made the seller want to sell at any price to preserve his sanity. You need to have the vision to imagine that house all clean and nice, ready for an enthusiastic new owner. Don't buy it unless the neighborhood average price that you expect to resell for, is enough higher than what you offer to cover renovation and profit. The seller of that sort of property may sell at any price, he has been outsmarted by really dumb tenants and is completely disheartened. The house has probably been vacant and on the market for months. You just need to make the renovation that he should have. Restating my point, accurate cost estimating before you make an offer is where all your profit is. For this example, don't overlook that you might have to rip out the flooring clear down to the joists.

I wouldn't rely on a general rise in the market to create profit, which I think is one treacherous element of the 'flip' mentality. Rather, structure your offer so that you will easily survive in a falling market and might make good money if conditions are better. Many offers may be rejected until you find that guy who wants out at any price.

There are many people who want to own rentals as a longer term investment, and those people always want something that looks respectable. They are your target market for selling a renovated unit. I found that a RE agent very unlike myself was a window into the world of those people - he was retired high-rank military, lived in a ritzy suburb, spent all day playing golf and talking about pride of ownership to people who wouldn't consider buying a below-average rental. He was sharp, I'm sure he never showed a 'before' picture of a renovated house to his classy clients. Find such an agent who specializes in 'investment property' to sell for you. His customers rely on the atmosphere he creates, they won't hammer you down with cheapskate offers.

If you are going to rent it out yourself go around to new condos or whatever new construction is offered at your rental price level. Decorate using the same style as the new construction. Your target tenants will recognise the style and prefer it, making the house easier to rent.

Yes I do have an MBA, but that wasn't the source of this business strategy. I devised the strategy then within three years was able to live off my rentals and go back to college full time for a graduate degree. Then 19 years in a white-collar job, gradually selling my rentals, and out at 54 after putting away enough savings for retirement, putting two kids through college, and eventually buying this orchard out of Dad's estate. When I bought my first property (a duplex) it had taken us a whole year to scrape together the thousand dollar FHA down payment. As soon as I had a tenant alongside us in that first duplex (whose rent covered the entire mortgage payment), I've never felt short of money since.

 

[California]

Worked for me. I retired at 54.

There's a lot of wisdom in the posts above. Buy the cosmetic fixer and then when you have it up to average, the increase in value is a cushion against a falling market.

A couple of additional observations:

Don't be afraid where more extensive renovation is needed, just don't fix it beyond average for the neighborhood.

You make all the money BEFORE you buy. The essence of making money in fix-up real estate is to keep looking until you find the deal that has $x difference between what it sells for now, and what you can get for it after you have brought up to average in that neighborhood. Get several agents to do your searching for you.

As an extreme example (a little beyond anything I got into) I often said the smell of rancid dog-piss throughout a vacant house is worth $50,000. No sane tenant will move in now and the ones who left were scum who made the seller want to sell at any price to preserve his sanity. You need to have the vision to imagine that house all clean and nice, ready for an enthusiastic new owner. Don't buy it unless the neighborhood average price that you expect to resell for, is enough higher than what you offer to cover renovation and profit. The seller of that sort of property may sell at any price, he has been outsmarted by really dumb tenants and is completely disheartened. The house has probably been vacant and on the market for months. You just need to make the renovation that he should have. Restating my point, accurate cost estimating before you make an offer is where all your profit is. For this example, don't overlook that you might have to rip out the flooring clear down to the joists.

I wouldn't rely on a general rise in the market to create profit, which I think is one treacherous element of the 'flip' mentality. Rather, structure your offer so that you will easily survive in a falling market and might make good money if conditions are better. Many offers may be rejected until you find that guy who wants out at any price.

There are many people who want to own rentals as a longer term investment, and those people always want something that looks respectable. They are your target market for selling a renovated unit. I found that a RE agent very unlike myself was a window into the world of those people - he was retired high-rank military, lived in a ritzy suburb, spent all day playing golf and talking about pride of ownership to people who wouldn't consider buying a below-average rental. He was sharp, I'm sure he never showed a 'before' picture of a renovated house to his classy clients. Find such an agent who specializes in 'investment property' to sell for you. His customers rely on the atmosphere he creates, they won't hammer you down with cheapskate offers.

If you are going to rent it out yourself go around to new condos or whatever new construction is offered at your rental price level. Decorate using the same style as the new construction. Your target tenants will recognise the style and prefer it, making the house easier to rent.

Yes I do have an MBA, but that wasn't the source of this business strategy. I devised the strategy then within three years was able to live off my rentals and go back to college full time for a graduate degree. Then 19 years in a white-collar job, gradually selling my rentals, and out at 54 after putting away enough savings for retirement, putting two kids through college, and eventually buying this orchard out of Dad's estate. When I bought my first property (a duplex) it had taken us a whole year to scrape together the thousand dollar FHA down payment. As soon as I had a tenant alongside us in that first duplex (whose rent covered the entire mortgage payment), I've never felt short of money since.

 

[EddieWalker]

In the last three years I've fliped 5 houses and built three spec homes.

They all made money, but a few of them took longer to sell than I was comfortable with and I started to get a little worried. I've also had them sell the day I listed them, so it goes both ways.

When I look at a home, I also look at the comps in the neighborhood and what a finished home will sell for.

Lets say homes in good shape sell for $100,000 in an area. I know that it will usually cost me $20,000 to fix up a house. That number just seems to be what it turns out at for most jobs and where I start my figuring. Anything major or excessice is added to $20,000. It's very rare to get it done for under $20,000.

Than I need a profit. Figure how long the work will take to do and what you want to make on the job. I have an amount that I consider my minimum for it to be worth my time.

Next you need to know what taxes, comissions and the selling expenses will total.

Add these numbers up and you know what your top dollar for the house is. Never pay more than this number, and always try to pay at least ten percent under this amount.

This is when it gets hard. The sellers wants as much as they can for the place. You need to make money on it, so you have to know what it will cost and what it will sell for. Most fixer upper homes are priced close to retail minus the obvious repairs.

The reason I've only fliped 5 homes in the last three years is because that's all that I've been able to find that I was able to buy at a good price.

There's plenty of others doing this same thing. Some are paying way too much money and losing their butts. Others are cutting corners that I won't. It's scary what some people will do to a home, then disapear. But that's a whole diffrent thread.

Good luck,
Eddie

 

[EddieWalker]

In the last three years I've fliped 5 houses and built three spec homes.

They all made money, but a few of them took longer to sell than I was comfortable with and I started to get a little worried. I've also had them sell the day I listed them, so it goes both ways.

When I look at a home, I also look at the comps in the neighborhood and what a finished home will sell for.

Lets say homes in good shape sell for $100,000 in an area. I know that it will usually cost me $20,000 to fix up a house. That number just seems to be what it turns out at for most jobs and where I start my figuring. Anything major or excessice is added to $20,000. It's very rare to get it done for under $20,000.

Than I need a profit. Figure how long the work will take to do and what you want to make on the job. I have an amount that I consider my minimum for it to be worth my time.

Next you need to know what taxes, comissions and the selling expenses will total.

Add these numbers up and you know what your top dollar for the house is. Never pay more than this number, and always try to pay at least ten percent under this amount.

This is when it gets hard. The sellers wants as much as they can for the place. You need to make money on it, so you have to know what it will cost and what it will sell for. Most fixer upper homes are priced close to retail minus the obvious repairs.

The reason I've only fliped 5 homes in the last three years is because that's all that I've been able to find that I was able to buy at a good price.

There's plenty of others doing this same thing. Some are paying way too much money and losing their butts. Others are cutting corners that I won't. It's scary what some people will do to a home, then disapear. But that's a whole diffrent thread.

Good luck,
Eddie

 

[NSBound]

Eddie, some good information there. Out of curiosity, when you say average $20,000 to reno before resale, is that all contracted out, or is that basically just materials and you are doing most if not all of your own labor? Just curious,

 

[NSBound]

Eddie, some good information there. Out of curiosity, when you say average $20,000 to reno before resale, is that all contracted out, or is that basically just materials and you are doing most if not all of your own labor? Just curious,

 

[RayH]

All the replies have good info in them. Different points of view and different strategies but all good information. I think Eddie is doing what Im interested in.
Ive considered the rental property thing. It would definately take some of the edge off of a slowing market but man what a PITA rentals can be.
Keep them coming.

 

[RayH]

All the replies have good info in them. Different points of view and different strategies but all good information. I think Eddie is doing what Im interested in.
Ive considered the rental property thing. It would definately take some of the edge off of a slowing market but man what a PITA rentals can be.
Keep them coming.

 

[dooleysm]

I rented a house to some friends of mine for about a year and a half when I lost my job and had to move, fast.

It was a pain in the butt. I was about 2 hours away, so I could make it back, but it was a hassle. They wanted me to come up and do the dumbest things for them that any reasonable person would do on their own. It was way too many headaches for me and not nearly worth it.

 

[dooleysm]

I rented a house to some friends of mine for about a year and a half when I lost my job and had to move, fast.

It was a pain in the butt. I was about 2 hours away, so I could make it back, but it was a hassle. They wanted me to come up and do the dumbest things for them that any reasonable person would do on their own. It was way too many headaches for me and not nearly worth it.