Wow, you guys are awesome! I received so many great questions that I'll be breaking the flipping Q&A into several posts. So let's start at the very beginning (a very good place to start). Do you work with a realtor who alerts you to good leads for flip houses, or do you go it alone and hunt on MLS?
We work with a great realtor who has also flipped houses herself in the past, so she gets it. She knows what we're usually looking for and will let us know when she sees a house that we need to see. I do search inventory myself as well, but it's great to have her as a resource.
Do you only look for houses in your neighborhood or do you choose projects within a certain radius of your home?
We've tried purchasing properties in our own neighborhood but it's very competitive and we always end up losing to a higher bid, unfortunately. Closer to Boston means more competition and higher prices. I'm willing to travel about 45 minutes to a flip, so that's where we set our radius. When I was working my corporate 9to5 in Boston, I had an hour commute, so as long as we keep it under that, we're golden. Even though I look at houses in many different towns, thus far all 4 flips have been in Worcester. It's a 45 minute commute from my house, but, it's conveniently close to my sister, in-laws, and friends so I've always had a bathroom to use when the flips had none. Higher prices and more competition do generally mean higher selling prices as well, so I'd love to expand to another area.
Do you already have an idea of how much it will cost to flip a property before you put in an offer? If so, how do you come up with this estimate?
Our realtor and I will generally head out and look at several properties at a time. After we finish up, I head home and start doing some math for the properties I'm considering. I'll start a spreadsheet with the costs that I estimate for the fixes to see if the numbers work for us. These are very rough guesses based on my previous experiences. For example: 5k per bathroom update, 15k for a kitchen, 5-10k for a new roof (depending on size), etc. While I don't generally use high end materials, I like to think that I put a twist on my projects that makes them look much more expensive. We always add in a 10% "sh*t we forgot* factor to cover the unknown or stuff we just forgot to take into account. If there's something that I really have no idea what to estimate, I'll call a friend who's had similar work done, or find someone to give me a ballpark cost. Once we have a rough reno budget estimated, we look at the potential resale price, subtract out carrying costs (utilities, taxes, insurance...), subtract out the reno budget, then decide how much profit would be worth us taking on the project and adjust our offer accordingly. This is where it's all about the numbers for us. If the sellers are asking far too much for the renos that it needs (which is most often the case), there's no room for profit for us and it gets crossed off the list. We see so many cool houses that I would love to save, but the numbers just don't work. Granted my estimated budgets aren't always 100% but so far they've served us pretty well. We went over on Millie about 5k due to lots of surprise plumbing issues, but ended up about 3k under on Grover. I'd say that's not terrible for rough estimating.
HOW exactly do you go about purchasing the house?
When Hubby and I first started talking seriously about flipping, we started to sit down to talk to a bank about a commercial loan. We have an LLC established for our flipping, so we were looking to borrow as a company. We didn't end up having to go that route because we are lucky enough to have family willing to invest in us and provide us with a "private" mortgage. Basically when we put in offers to buy the houses, we look like we're cash buyers because we do the mortgage on the side. This is a huge plus since a lot of the properties we try and buy don't qualify for traditional mortgages anyway. While we borrow to purchase the house, the reno costs thus far have come out of our savings. We started small and have been reinvesting the profits which has allowed us to take on bigger fish like Millie (more on $ next week)
Are there certain things you look for or avoid when considering a house to flip?
As mentioned above, the numbers have to work for us to consider making an offer on a property, but I'll admit that choosing the next project is a bit emotional too. I'll be spending a LOT of time and money on this property and I have to like it. Obviously antique homes just charm my pants off, so they generally get more consideration, but if we can turn a profit quickly on a basic ranch, you bet we're running the numbers. Very few things actually scare me away from a house. I can deal with questionable stains, stenches, blue bathrooms, badly done DIY renos... I'm even willing to deal with structural and termite damage if the house is desirable enough (for example a historic property in the right location). If there's room for profit after dealing with the structural issues, termite damage, or new septic system it'll stay on my list. What won't stay on my list is houses that just don't make sense, and there are a lot of those out there. Like a house where the only way to get to the in-law suite addition is through the only bathroom or a house where there's no hallway by the bedrooms, just doors through the bedrooms to get to the next (both true stories). I have to be able to make sense of a house, because if I can't make sense of it, buyers won't be able to either. It's worth considering if I can move a few walls and have it make sense, but more often than not, these weird houses are beyond my help. They either started as old farmhouses or mixed-purpose buildings and don't make sense for any modern functionality without MAJOR renovations (i.e. gut and add an addition or dormers) or they're a house that has been the victim of bad homeowner renovation ideas (in-law suite through the bathroom??).
Before you close on a house, do you have an inspection to search out any big issues? Is that a condition of closing?
We always get a home inspection to make sure that there's no issue that I wasn't already accounting for. We don't make it a condition for closing since we generally by "as-is" properties anyway. We just want to make sure that there aren't any major issues looming. We've only had one property that we backed out of after an inspection. After our offer was accepted, we discovered that there had been a ton of unpermitted work done to the house recently and the inspection turned up structural issues on top of that. We came back to the sellers with a lower number since we would have to restructure the basement in addition to tearing walls back open to get permits for the plumbing and electrical (who drywalls the entire first floor when you don't even have plumbing run to the second??). Well, they wouldn't take our lower offer and never put the property back on the market. It's been sitting vacant and half (poorly) renovated for the better part of 2 years. If we could get that house for the right cost, however, we'd still buy it in a blink.
Did you have much experience in construction/renovation before you got into this?
Nope. I'm the product of growing up in a very handy household. Add a design degree on top of that and it's a dangerous mix. Growing up, my dad and uncle built our garage, my dad finished our unfinished basement, and my parents built their dream multi-level deck. (All with an eye for detail. If you do it, do it right.) I think handiness is in my blood. I didn't really get into any heavy duty stuff until we got our home 4.5 years ago. Before my first flip, I had never tiled, and had very limited tools and experience. My dad got a call just about daily- "how do I do ______?" or "can I borrow _____ tool?" Now we joke that the student has become the teacher (in some areas). My brain works in a strange combination of an artist and an engineer- it's about how the pieces work, but how do the pieces work to make it pretty?
I think that's enough for today's novel. Clearly I could talk about flipping for days, but I'll spare you for now. I'll be back with more Flipping Q & A next Friday, so if you think of more questions, toss them my way!
Have a great weekend!