New Richmond Flip: How to find and evaluate deals in the current market....
Once we decided we wanted to move forward with taking on our first full-scale flip, I thought the "finding it" part would be relatively easy, but unfortunately, that wasn't necessarily true. As mentioned in the previous post, we had our list of "must haves", but I also had a joint list of "nice to haves" that would rear their head any time something looked good on paper, but just didn't feel right....I know, I know...if we're not using quantifiable data here, it makes it tough to have a fair and equitable comparison, but I do think that trusting your gut in these situations holds just as much, if not more weight than all of the numbers and data points. And hey! If it was easy and didn’t take a little bit of “talent”, anyone would/could do it right?
So, to quickly run through my process:
1. Set up a search in the MLS with the criteria outlined previously (I then created daily emails so I wouldn’t miss out on any coming soon properties)
2. I would set up about an hour of my day to review all properties and put the potentials into a spreadsheet that I created to compare all variables
**I should mention that I also have a few contacts who work with wholesalers and therefore, I would randomly be sent “off-market” deals or foreclosures, but in all honesty, they were all either overpriced (I get that the wholesalers need to make a profit too) or they were just complete dumps that even I couldn’t see much potential in**
3. Here is an example of what I would put together in a day:
4. From here, I would decide which 2-3 I wanted to take a look at that week, and then I would set up showings to do just that. (Keep in mind, that some of these properties were slightly "shady", so I would recommend bringing a spouse or friend if you're going to be heading to any that are in a more remote area of town)...
5. It took me all of about 10 minutes to determine if a house was worth thinking about, mainly "is it in a part of town where other homes are comped at a higher price than this?" "how much do I think the rehab costs would be?" and "does it have the right 'feel and potential'?" To elaborate slightly:
-taking a look at comps in the neighborhood gives an indication of range in which you could likely list it for after the rehab (always look for the worst house in the nicest neighborhood as a good rule of thumb)
-being a designer/remodeler and also reading many, many books on rehab costs (I recommend a quick read of Bigger Pockets' Estimating Rehab Costs as a place to start) a general estimation of what it would cost to get the place ready to sell is usually pretty spot on (within 10-15k for a full remodel is pretty good) for me, not to brag ;) **I always, ALWAYS recommend giving yourself wiggle room though, as you never know what you will find behind old walls, and most people forget to factor in the holding costs, insurance, utilities, etc. of purchasing a home
-the feel and potential are things you kind of just have to learn for yourself, but I think most people know when something has "good bones", and if you don't....give DZ Design Haus a call, and I'd be happy to walk you through a vision for a property you might be considering
6. I would say I probably looked at around 10 homes total before finding this place in New Richmond, which was listed at about $95/square foot, had great "flow" and character, a large city lot, and being a Realtor in Wisconsin, I knew that homes were going like hot-cakes in the New Richmond market...basically is hit all of my criteria:
-listed at 220k, and other comparable homes had been selling anywhere from 340-400k
-I figured about 75k in rehab costs initially (more on how and why I adjusted this later)
-was considering a 350k list price, and knew that holding costs (6 month estimate) would be about $3,500-4,000 given that we would be making an all cash purchase and wouldn't have a mortgage to factor in. **also keep in mind closing costs as the seller eventually (probably looking at 4-10k depending on final sales price**
SO....some quick math: purchase at $210,000 (going in lower, but assuming a counter) + $14,000 in closing and holding costs + $75,000 in rehab would bring us to $299,000 all in, and if we could get $350,000 for it, that would be about a $50,000 profit in 6 months.
7. This sounded like a homerun for our first rehab, and we decided early on, that even if we didn't make any or very little money, it would be worth the learning experience and both my husband and I are busy-bodies who can't stand not having something to work on ;)
8. Therefore, I decided to put in an offer at $205,000 just to test the waters, and to my surprise, they ACCEPTED!
9. We decided on a January 20th closing date (this was right around Christmas time 2020), and the rest is history so the saying goes...
I know that was a lot of information, and might still be confusing to some who are interested in considering investing in real estate in the future, so if that sounds like you, please reach out! I love talking to like-minded individuals and we ALL start somewhere, so anything I can share about my experience would be an honor for me to pass along...