I am toying with the idea of trying to go out on my own by buying, rehabilitating, and selling residential properties for a profit. I'm not sure when (1-5 years) but would love some advice from people who have already done this. I would imagine it's a great time right now to buy the properties since prices and interest are so low, but a terrible time to actually try and sell them after the flip.
I would like to flip 2-3 homes a year, do some of the construction myself, but most by a friend who's a contractor and is very reasonable in terms of cost.
So any warnings, advice from anyone? How "risky" is a venture like this, given the terrible housing market?
It is risky, but it is a calculated risk depending on how much proper due diligence you preform. I'm very close to doing a house myself...
The most important things to consider is to know a MUCH as you can about every financial aspect before you pull the trigger.
Not a complete list, but off the top of my head:
How much will the house/lot cost?
How much will your renovation/new design cost? (Get bids from subs or a thorough cost estimate from your contractor friend).
How much are houses of a similar size & program selling for in the area? (Do not price your project out of the neighborhood!)
Where is the money coming from?
If it's a loan, what are the terms?
Can you even get a loan?
How much are the monthly payments on a construction loan?
How much is the insurance to cover the work you will be doing?
How much is health insurance for yourself/your family while you are self employed?
What happens when construction is finished and it hasn't sold?
Can you roll into a conventional mortgage at that point?
If so, are you moving into the project to help you cover the cost of that until it sells?
How are you planning to pay yourself a salary during this process? (Banks won't let you pay yourself for the drawings with a construction loan, they can however be used a equity in the project as part of your down payment, so you can get paid for them on the back end assuming the project doesn't sell for a loss).
Know everything you can about the lot.
What are the set backs?
Are there any restrictions for size, shape, material, max % impervious cover, etc?
Are there critical root zones for trees that you can't cover?
How much is it going to cost to sell the house? (usually 6% of sell price at minimum for real estate agents, plus any additional advertising you may want)
Are you going to pay for staging?
Backwards calculate ALL of the projected costs from how much you realistically think you can sell the project for, include how much money you need to make in order to make ends meet. AND ADD A CONTINGENCY BECAUSE THERE ARE ALWAYS UNFORESEEN COSTS!
you are not the only one who is thinking of doing that.
just like 'tagalong' said there are so many things you have to plan out.
I would recommend you to do this as a part time or second job along with your fulll time stable office job. there are so many issues you are not probably aware of regarding to 'financing' or 'taxes'.
excellent comments...
in terms of targeting a house, looking at it from a bigger perspective, would you recommend looking at a city in general, looking for undervalued neighborhoods, and then zoom into the more localized scale of finding an undervalued home in that neighborhood? or do you look at a good neighborhood with an undervalued home that could be remodeled to fit the current market of that neighborhood?
Latest census figures are just now coming out. One if the whoppers that was revealed is that 13% of US housing stock is currently vacant. Highest rate, well... EVER.
Family friends of ours have been flipping properties for over 10 years now. On their latest sale they lost $300k (on a $1M house). They had to sell it to highest underbidder in order to pay their debts. That, or declare bankruptcy. In which case they would have lost the properly anyways.
You may have better luck, but be prepared to shed blood for every potential dollar you may potentially make.
Also, remember flippers played a substantial role in wild market speculation that got us into this clusterfuck to begin with.
If you have money to buy and hold, you'll be fine. BUT that means it is money that could be elsewhere (look at the stock market, can you make returns like the last year + in real estate? Nope).
Buying distressed assets is great, if you have #1 cash (not borrowing, but real liquid cash), and #2 you have someone that you trust that can find the properties for you.
You need #2 because you simple can't have enough time/connections to move fast enough to cover everything. I've got a friend that's trying to buy her house (for herself), homes are going in minutes as they hit the market.
Construction - forget about that. Most fix/flips are limited work, just simple things like counter tops, a few tiles here and there, maybe a few plantings, maybe staged. Totally superficial things - all about 'selling' an image.
If you have those, my guess, you wouldn't be posting here. Seems like a great idea, until you have a few hundred grand you are paying interest on, and waiting and waiting and waiting....
No one knows when the market will move in a better direction. Ain't gonna be soon, so you'll be waiting a while (and paying and paying...;-) )
Great idea, if you have tons of cash/liquidity and a team to capture the best deals quickly (if you have the former, that won't be problem)
As a homeowner who lives next door to an old house that was flipped three times in three years and has now returned to its former dilapidated state as a rental property I have a dim view of flippers.
Mar 28, 11 2:07 pm ·
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Flipping real estate
I am toying with the idea of trying to go out on my own by buying, rehabilitating, and selling residential properties for a profit. I'm not sure when (1-5 years) but would love some advice from people who have already done this. I would imagine it's a great time right now to buy the properties since prices and interest are so low, but a terrible time to actually try and sell them after the flip.
I would like to flip 2-3 homes a year, do some of the construction myself, but most by a friend who's a contractor and is very reasonable in terms of cost.
So any warnings, advice from anyone? How "risky" is a venture like this, given the terrible housing market?
It is risky, but it is a calculated risk depending on how much proper due diligence you preform. I'm very close to doing a house myself...
The most important things to consider is to know a MUCH as you can about every financial aspect before you pull the trigger.
Not a complete list, but off the top of my head:
How much will the house/lot cost?
How much will your renovation/new design cost? (Get bids from subs or a thorough cost estimate from your contractor friend).
How much are houses of a similar size & program selling for in the area? (Do not price your project out of the neighborhood!)
Where is the money coming from?
If it's a loan, what are the terms?
Can you even get a loan?
How much are the monthly payments on a construction loan?
How much is the insurance to cover the work you will be doing?
How much is health insurance for yourself/your family while you are self employed?
What happens when construction is finished and it hasn't sold?
Can you roll into a conventional mortgage at that point?
If so, are you moving into the project to help you cover the cost of that until it sells?
How are you planning to pay yourself a salary during this process? (Banks won't let you pay yourself for the drawings with a construction loan, they can however be used a equity in the project as part of your down payment, so you can get paid for them on the back end assuming the project doesn't sell for a loss).
Know everything you can about the lot.
What are the set backs?
Are there any restrictions for size, shape, material, max % impervious cover, etc?
Are there critical root zones for trees that you can't cover?
How much is it going to cost to sell the house? (usually 6% of sell price at minimum for real estate agents, plus any additional advertising you may want)
Are you going to pay for staging?
Backwards calculate ALL of the projected costs from how much you realistically think you can sell the project for, include how much money you need to make in order to make ends meet. AND ADD A CONTINGENCY BECAUSE THERE ARE ALWAYS UNFORESEEN COSTS!
Good luck.
go to biggerpockets.com
you are not the only one who is thinking of doing that.
just like 'tagalong' said there are so many things you have to plan out.
I would recommend you to do this as a part time or second job along with your fulll time stable office job. there are so many issues you are not probably aware of regarding to 'financing' or 'taxes'.
let me know if you have solutions for these?
excellent comments...
in terms of targeting a house, looking at it from a bigger perspective, would you recommend looking at a city in general, looking for undervalued neighborhoods, and then zoom into the more localized scale of finding an undervalued home in that neighborhood? or do you look at a good neighborhood with an undervalued home that could be remodeled to fit the current market of that neighborhood?
Latest census figures are just now coming out. One if the whoppers that was revealed is that 13% of US housing stock is currently vacant. Highest rate, well... EVER.
Family friends of ours have been flipping properties for over 10 years now. On their latest sale they lost $300k (on a $1M house). They had to sell it to highest underbidder in order to pay their debts. That, or declare bankruptcy. In which case they would have lost the properly anyways.
You may have better luck, but be prepared to shed blood for every potential dollar you may potentially make.
Also, remember flippers played a substantial role in wild market speculation that got us into this clusterfuck to begin with.
So.... Don't do this to us again, bro! :)
If you have money to buy and hold, you'll be fine. BUT that means it is money that could be elsewhere (look at the stock market, can you make returns like the last year + in real estate? Nope).
Buying distressed assets is great, if you have #1 cash (not borrowing, but real liquid cash), and #2 you have someone that you trust that can find the properties for you.
You need #2 because you simple can't have enough time/connections to move fast enough to cover everything. I've got a friend that's trying to buy her house (for herself), homes are going in minutes as they hit the market.
Construction - forget about that. Most fix/flips are limited work, just simple things like counter tops, a few tiles here and there, maybe a few plantings, maybe staged. Totally superficial things - all about 'selling' an image.
If you have those, my guess, you wouldn't be posting here. Seems like a great idea, until you have a few hundred grand you are paying interest on, and waiting and waiting and waiting....
No one knows when the market will move in a better direction. Ain't gonna be soon, so you'll be waiting a while (and paying and paying...;-) )
Great idea, if you have tons of cash/liquidity and a team to capture the best deals quickly (if you have the former, that won't be problem)
As a homeowner who lives next door to an old house that was flipped three times in three years and has now returned to its former dilapidated state as a rental property I have a dim view of flippers.
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