We have found our next house flip, House #8 is our new rehabbing project. Unlike our previous flipping projects there are several things with this house that is going to make it a different deal for us.
Our previous home flipping projects have been mostly houses for first time home buyers. Here in Atlanta, specifically the North and Northwest part of the city, that typically means a house with at least 3 bedrooms and 2 baths and in the low $100,000 price range. Our typical rehab cost is in the $20k range and it takes us about 2-3 weeks of work to turn a house around.
With our last property, House #7, we started taking a different direction in terms of the customer we are going for. What was attractive to me about that property was two things: the area and the features of the house. The area was good because of the schools, the higher property values in general and the lower number of foreclosure which is a BIG deal if you are trying to flip.
The house itself was nice because it had good square footage and the all desirable basement. It wasn’t too old and the repairs that were needed were pretty standard stuff no complicated or risky repairs.
You can read all the reports on that house on the Flip That House page and look at the before and after pictures so you can understand it better. But the main thing about that house was that it moved us into a new price range. We ended up selling that house for $165k. What I noticed was that at that price range you find people that are either moving up in house or couples with good employment that can qualify more easily for a mortgage than first time home buyers can.
So…for House #8 we were trying to replicate House #7. We started looking for foreclosures in the same area and looking at price points in the $75-$115k range.
Now, the thing about the area we are looking for is that it is an “expensive” area for Atlanta standards. Homes under $100k are few and far between and homes above $200k are abundant.
In turn this had me submitting offers between $80 and $100k on foreclosures that were listed $115k to $150k. As you might imagine many times this did not even get me a response from the listing agent ;-) Nothing new to me (to be expected in this business) but a good two months went by where we could not put anything under contract.
Then House #8 showed up …in a different way…I did not find it. It found me.
I found out about it through a wholesaler that had put it under contract. A wholesaler is typically a real estate investor that goes out and finds real estate deals and sells them to investors. They do this by negotiation and ultra low price on a property with the seller, putting the property under contract and then selling the property to an investor at a higher price. The difference in price between what they negotiates with the seller and what they sell to the investor is their profit.
What first caught my attention with this property was the location. Wholesale deals in this area are few and far between. It was also just outside of my target area but close enough for me to consider. Actually it was an area I had not considered because it was a higher price range area than what I was looking for.
So once I got a hold of the deal the first thing I did was look at the comparable sales in the area. You see, the wholesaler was claiming that the ARV (after repair value) of this property was in the $240k range. Once I researched the area and recent sales much to my surprise I came to the conclusion that an ARV in the $230k range was realistic.
Since the ARV checked out next I went to look at the house. The first thing that caught my attention was how nice the neighborhood was and how well kept all the houses where.
Unfortunately (fortunately for me as an investor) this house was the ugly duckling of the neighborhood <i>(hint, the ugliest house in the nicest neighborhood is a very good thing for an investor)</I >. It had a lot of deferred maintenance and as such it had a leaky roof that resulted in some damaged drywall and rotted wood. It also had ruined floors and carpet, nasty appliances and outdated décor and fixtures throughout.
A thorough assessment of all the repairs needed, several phone calls and some number crunching later… I came up with a repair bill in the mid to high $30k. The biggest thing was that it was a big house which means a big roof that requires a lot of shingles, a lot of square footage for flooring, more paint, more base molding, etc.
Also the fact that it is a higher price point and fancier neighborhood means it requires granite instead of Formica countertops, stainless steel instead of black appliances, larger HVAC unit, nicer lightning fixtures instead of basic and so on…
Since I now knew how much it would cost to repair and how much it can sell for all that was left was being able to buy it at a price that would allow me to make the profit that I wanted on the resale. This would require some negotiating as the house was listed for $150,000 and that price would not work for me.
I’ll cover that on the next post…
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